Source: Of Dollars And Data —
Buying a home is likely to be the biggest financial decision you will ever make. As a result, such a decision requires careful consideration of your financial situation, personal life, and the state of the housing market. And with interest rates at their highest levels since 2008, many are worried that now isn’t the right time to become a homeowner.
But before we write off the housing market entirely, let’s do a deep dive on the real estate market to definitively answer the question, “Should I buy a house now?”
The Current Housing Market
If I had to categorize the early 2023 U.S. housing market it would be slowing sales, decreasing prices, and surging mortgage rates.
As you can see below, existing U.S. Home Sales have dropped by 45% since their peak in late 2020:
This is the largest decline in U.S. existing home sales since the housing crisis in 2008.
And, with decreased demand, prices have begun to come down as well. The median sale price for existing U.S. homes has dropped by 13% while the median sale price for new U.S. homes has dropped by 14% within the last year:
To put this in perspective, the median sale price of an existing home in the U.S. dropped from $408,600 in May 2022 to $359,000 by January 2023.
How did this happen? As you probably already know—rising mortgage rates.
The 30-year mortgage rate in the U.S. is at its highest level since 2008:
And higher mortgage rates mean more costly mortgages.
How much more costly? To be precise, the monthly mortgage payment required to buy the median existing U.S. home has gone up over 75% since the beginning of the pandemic [assuming a 20% downpayment and a 30-year fixed rate mortgage]:
To put this in perspective, in January 2020 the monthly mortgage payment required to buy the median existing U.S. home was under $1,000. As of January 2023, it was $1,772 (which is down 11% from the peak of $1,995 per month in October 2022).
With such rising costs, affordability has become a serious issue in the real estate market. As research from Black Knight illustrated, the payment-to-income ratio for the average-priced home in the U.S. is at its highest level since the early 1980s:
As a result, many prospective home buyers are being priced out of the market. And for those homeowners that can afford to buy, they have little incentive to because they don’t want to give up the low mortgage rate they locked in years ago.
You can see this clearly if you look at the chart below (from Goldman Sachs Global Investment Research) which shows that 99% of borrowers have a mortgage rate below the current market rate:
Between the affordability issues and increased mortgage rates, it’s no wonder that the housing market has slowed significantly.
However, despite these bearish headwinds in housing, there are many reasons why now is a great time to be a homebuyer.
Why It’s a Buyer’s Market in Real Estate
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