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If rising home prices leave you wondering if it makes more sense to rent or buy a home in today’s housing market, consider this. It’s not just home prices that have risen in recent years – rental prices have skyrocketed as well. As a recent article from realtor.com says:

“The median rent across the 50 largest US metropolitan areas reached $1,876 in June, a new record level for Realtor.com data for the 16th consecutive month.”

That means rising prices will likely impact your housing plans either way. But there are a few key differences that could make buying a home a more worthwhile option for you.

If You Need More Space, Buying a Home May Be More Affordable

What you may not realize is that, according to the latest data from realtor.com and the National Association of Realtors (NAR), it may actually be more affordable to buy than rent depending on how many bedrooms you need. The graph below uses the median rental payment and median mortgage payment across the country to show why.

As the graph conveys, if you need two or more bedrooms, it may actually be more affordable to buy a home even as prices rise. While this doesn’t take into consideration the interest deduction or other financial advantages that come with owning a home, it does help paint the picture that it may be more affordable to buy then rent for that unit size based on nationwide averages. So, if one of the factors motivating you to move is a desire for more space, this could be the added encouragement you need to consider homeownership.

Homeownership Also Provides Stability and a Chance To Grow Your Wealth

In addition to being more affordable depending on how many bedrooms you need, buying has two other key benefits: payment stability and equity.

When you buy a home, you lock in your monthly payment with your fixed-rate mortgage. And that’s especially important in today’s inflationary economy. With inflation, prices rise across the board for things like gas, groceries, and more. Locking in your housing payment, which is likely your largest monthly expense, can provide greater long-term stability and help shield you from those rising expenses moving forward. Renting doesn’t provide that same predictability. A recent article from CNET explains it like this:

“…if you buy a house and secure a fixed-rate mortgage, that means that no matter how much prices or interest rates go up, your fixed payment will stay the same every month. That’s an advantage over renting since there’s a good chance your landlord will raise your rent to counter inflationary pressures.” 

Not to mention, when you buy, you have the chance to build equity, which in turn grows your net worth. It works like this. As you pay down your home loan over time and as home values continue to appreciate, so does your equity. And that equity can make it easier to fuel a move into a future home if you decide you need a bigger home later on. Again, the CNET article mentioned above helps explain:

Homeownership is still considered one of the most reliable ways to build wealth. When you make monthly mortgage payments, you’re building equity in your home that you can tap into later on. When you rent, you aren’t investing in your financial future the same way you are when you’re paying off a mortgage.”

Bottom Line

If you’re trying to decide whether to keep renting or buy a home, let’s connect to explore your options. With home equity and a shield against inflation on the line, it may make more sense to buy a home if you’re able to.

If you’ve been thinking about buying a home, you likely have one question on the top of your mind: should I buy right now, or should I wait? While no one can answer that question for you, here’s some information that could help you make your decision.

The Future of Home Price Appreciation

Each quarter, Pulsenomics surveys a national panel of over 100 economists, real estate experts, and investment and market strategists to compile projections for the future of home price appreciation. The output is the Home Price Expectation Survey. In the latest release, it forecasts home prices will continue appreciating over the next five years (see graph below):

As the graph shows, the rate of appreciation will moderate over the next few years as the market shifts away from the unsustainable pace it saw during the pandemic. After this year, experts project home price appreciation will continue, but at levels that are more typical for the market. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says: 

“People should not anticipate another double-digit price appreciation. Those days are over. . . . We may return to more normal price appreciation of 4%, 5% a year.”

For you, that ongoing appreciation should give you peace of mind your investment in homeownership is worthwhile because you’re buying an asset that’s projected to grow in value in the years ahead.

What Does That Mean for You?

To give you an idea of how this could impact your net worth, here’s how a typical home could grow in value over the next few years using the expert price appreciation projections from the Pulsenomics survey mentioned above (see graph below):

As the graph conveys, even at a more typical pace of appreciation, you still stand to make significant equity gains as your home grows in value. That’s what’s at stake if you delay your plans.

Bottom Line

If you’re ready to become a homeowner, know that buying today can set you up for long-term success as your asset’s value (and your own net worth) is projected to grow with the ongoing home price appreciation. Let’s connect to begin your homebuying process today.

There’s never been a truer statement regarding forecasting mortgage rates than the one offered last year by Mark Fleming, Chief Economist at First American:

“You know, the fallacy of economic forecasting is: Don’t ever try and forecast interest rates and or, more specifically, if you’re a real estate economist mortgage rates, because you will always invariably be wrong.”

Coming into this year, most experts projected mortgage rates would gradually increase and end 2022 in the high three-percent range. It’s only April, and rates have already blown past those numbers. Freddie Mac announced last week that the 30-year fixed-rate mortgage is already at 4.72%.

Danielle Hale, Chief Economist at realtor.com, tweeted on March 31:

“Continuing on the recent trajectory, would have mortgage rates hitting 5% within a matter of weeks. . . .”

Just five days later, on April 5, the Mortgage News Daily quoted a rate of 5.02%.

No one knows how swiftly mortgage rates will rise moving forward. However, at least to this point, they haven’t significantly impacted purchaser demand. Ali Wolf, Chief Economist at Zonda, explains:

Mortgage rates jumped much quicker and much higher than even the most aggressive forecasts called for at the end of last year, and yet housing demand appears to be holding steady.”

Through February, home prices, the number of showings, and the number of homes receiving multiple offers all saw a substantial increase. However, much of the spike in mortgage rates occurred in March. We will not know the true impact of the increase in mortgage rates until the March housing numbers become available in early May.

Rick Sharga, EVP of Market Intelligence at ATTOM Data, recently put rising rates into context:

“Historically low mortgage rates and higher wages helped offset rising home prices over the past few years, but as home prices continue to soar and interest rates approach five percent on a 30-year fixed rate loan, more consumers are going to struggle to find a property they can comfortably afford.”

While no one knows exactly where rates are headed, experts do think they’ll continue to rise in the months ahead. In the meantime, if you’re looking to buy a home, know that rising rates do have an impact. As rates rise, it’ll cost you more when you purchase a house. If you’re ready to buy, it may make sense to do so sooner rather than later.

Bottom Line

Mark Fleming got it right. Forecasting mortgage rates is an impossible task. However, it’s probably safe to assume the days of attaining a 3% mortgage rate are over. The question is whether that will soon be true for 4% rates as well.

The super-charged housing market of the past two years is expected to tick down a notch in 2022, but the same conditions that pushed home values and home sales to record highs in 2021 are likely to persist, making the coming year another tough year for buyers, according to an analysis by Zillow economists.

The economists predict that the current sellers’ market will continue into 2022, driven by the same factors that drove up home values by double-digit percentages in 2021: A tight supply of for-sale homes, plenty of millennial and baby boomer buyers competing for those homes, low mortgage rates, and a shift toward remote work that opens new possibilities for home shoppers.

Collectively, the market dynamics are likely to translate into bidding wars on many homes, especially during the traditional spring and summer shopping season when the market heats up.

Here are four real estate predictions to watch for in 2022.

1. 2022 home value growth will fall just short of record-breaking

Zillow’s forecast calls for an 11% increase in home values in 2022. That’s down from the 19.5% jump projected for 2021, but still among the strongest years since Zillow began tracking home values.

As of November 30, 2021, the typical U.S. home was valued at $316,368. An 11% increase would add another $34,800 to the price of a typical U.S. home.

Sales of existing homes are predicted to reach 6.35 million in 2022, the highest number in the past 14 years. In 2021, 6.12 million existing homes were estimated to change hands.

2. Sellers keep the upper hand

The past two years obliterated the usual seasonal patterns for sales. There were signs in the fall that we could return to the usual seasonal cooldown in the housing market. Data showed that fewer homes were selling above list price, homes were staying on the market a few days longer than they did during the summer, and more sellers were cutting their price. 

By late December, however, the autumn cooldown appeared to have run its course. Monthly price appreciation slowed, but barely. Inventory shrank, falling below 2019 levels.

All the evidence points toward this winter providing less of a break for buyers than many had hoped. Overall, the market is expected to cool slightly in 2022, but not enough to make it a buyers’ market.

3. ‘Sun Belt’ cities remain places of explosive price growth

Home prices in some of the larger Sun Belt cities — those located in the southernmost portion of the United States — saw explosive growth in 2021. As larger cities like Austin and Phoenix become less affordable, buyer demand is expected to push out to smaller Sun Belt cities, raising prices in those metros in 2022.

As of October 2021, 24 of the top 25 markets were in sunny states — a sign of things to come in 2022. 

Zillow economists expect fully remote workers to continue seeking affordable markets, like those in the Sun Belt and other nontraditional housing hot spots where they can afford to buy their first home or trade up for a bigger one. 

Traditional retirement markets also are likely to see elevated demand as a generally aging population seeks new living arrangements in retirement.

4. More Gen Zers and millennials will buy a ‘second home’ before a primary residence

With millions of Americans working from home and other remote locations, 2022 could see a new trend where the youngest buyers purchase a vacation or investment home before buying a primary home to live in full-time.

Younger people tend to favor urban areas with amenities, while recognizing that housing in those cities can be extremely expensive and often out of reach. As they explore remote work in more affordable places, they are becoming more willing to invest in a part-time vacation home or investment property to break into the market and start building equity while they explore their options.

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