What You Should Do About Record Declines In Home Affordability
The value of the residential real estate has skyrocketed over the past 2 years. In just one year, the prices have risen by more than 20%, putting home affordability at its lowest point ever and creating extremely high hurdles to entry.
Home purchasers are currently dealing with serious affordability concerns due to both supply chain problems and growing demand. Given these severe supply problems, we anticipate that even though existing house sales are declining, home prices will continue to rise at a yearly 10% rate.
Three major themes stand out according to the research. The cost of mortgages will continue to rise. If you have funds to make a down payment, buying is still preferable over renting. Additionally, inventory shortages are still being fueled by supply chain issues.
Higher Rates Are Now A Benchmark
The fixed mortgage rates increased from 3.26% in December last year to 4.22% in just 3 months. These hikes have been fierce and quick and won’t be slowing down. The big rate movement this year indicates that the affordability indicator will continue to trend sharply lower.
Higher rates would therefore reduce available homes for sale since existing homeowners, who account for around 40% of all house sales, would be hesitant to sell due to the alleged “deadbolt” effect.
The experts stated that there is a bigger disincentive to swap their present mortgagee with one that probably offers a cheaper fixed rate, which “lowers home turnover.”
Should I Rent Or Buy?
The property market is anticipated to remain competitive irrespective of the rise in mortgage rates. Individuals setting out to buy a house for the first time face a common major obstacle; down payments. Your individual financial condition should be considered when choosing to purchase a home. You should think through all the costs associated with home ownership before making the decision to purchase one.
Your individual financial condition should be considered when choosing to purchase a home. You should think through all the costs associated with home ownership before making the decision to purchase one.
Even though home values are increasing, it’s crucial to take your time and refrain from paying more than necessary for a home. Experts contend that purchasing a home is preferable to renting one, but only if you can pay the record high down payment.
Supply Chain Issues
The residential real estate market’s supply has reached record lows, making it one of the primary challenges. Supply chain concerns were restricting the housing industry prior to the Russia-Ukraine conflict. However, these issues persisted before the pandemic as well.
Timelines for construction have been prolonged by supply chain management related to the pandemic, and “the Russia-Ukraine crisis threatens to add extra snags, with supplies costs being driven higher. Due to all these problems, home affordability will continue to decline even though the sales have reduced by a lot. We can only hope the situation gets better soon.
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