Since 2020, home buyers have been struggling to get their hands on the limited housing inventory, prompting home sellers to raise the average home pricing to a record high. Combined with low mortgage debt and the need for more space, the high competition among buyers has resulted in bidding wars, making it impossible for new home buyers to buy a home within their budget.
In addition, with a forty-year high inflation rate and a decade-low consumer sentiment, American home buyers have been grappling with the high cost of home ownership, exhibiting low confidence in acquiring their dream home.
Fewer sales have been happening, and customers are less able or less willing to find a home that is within the price range they can afford. Even though mortgage rates fell in May, they remain much higher than in 2021.
In early June, the average fixed rate for a 30-year mortgage in the country was at 5.09%, which is a decrease of 0.21% from the 5.30% record high during the pandemic, but still very high from 2.68% in December 2020.
As such, more and more potential homebuyers are forced to sit on the sidelines, resulting in reduced demand for housing.
Tips for Buying a Home During a Housing Market Slowdown
For most homebuyers, buying a house during this time appears to be a frustrating process. However, there are ways to navigate the home buying process.
Finding the Right Agent
For homebuyers, especially if you are a first-timer, it is crucial to find an experienced and reputable real estate agent and a lender who can make your home buying experience as smooth and painless as possible.
To find the best realtor, it is a good idea to ask local homeowners for recommendations and request interviews with potential agents. Before you sign up to work with an agent, you should get proof of their expertise. This can be done through an initial meeting where you discuss your goals and needs and determine whether the real estate agent can help fulfill your expectations.
A top real estate agent will guide you through the entire home buying process and show you a few options based on your criteria. A good agent will provide you with a mutually-beneficial buyer agency agreement that can protect both your interests. They will walk you through the entire process and commit to their promise.
Searching with an Open Mind
Once you have a good agent on hand, you need to start the search for a home with flexibility and an open mind. Although it is an unfortunate fact, a large majority of first-time homebuyers cannot get the top choice for their home. You need to be flexible for a higher chance of success.
A good way to start the search for your home is to list the features you cannot compromise on. This will help the agent assess and filter out the options before you begin visiting the homes.
If one option is too expensive for you, you might need to consider another alternative. Proactive home buyers can help you get an edge over other buyers by researching new home constructions outside of hot markets or finding out about beneficial infrastructure projects that will be offered along more public routes.
You can find out where commercial development is underway and if you are willing to wait for a few years, you may be able to get a house there for a discounted price. This can help enhance your equity over a short time. You can get the assistance of your agent to get this information.
Negotiating the Contract
Real estate contracts are long, complex, and boring documents that often contain fine print. Before signing the contract, it is within your right to renegotiate any element you want. You can ask your agent for an explanation if something does not make sense in the contract. If you dislike something in the offer, you can always request modifications from the seller.
Make sure you understand everything in the contract, including what type of negotiations can be done, what type of inspections are allowed, whether you can qualify for a mortgage, and in what time frame everything needs to be done.
It is vital that you understand all the terms in the contract before you sign; otherwise, it can lead to delays and expensive mistakes for home buyers.
Considering a Home Inspection
Typically, a homebuyer will have about ten days to two weeks to get the home inspected. Depending on the inspection, you can ask the home seller for repairs or monetary concessions.
Remember that a thorough home inspection can be exhausting and frustrating, particularly if you are in the market for older homes. Most houses will have some issues, and most of them can be resolved. However, there are always some issues that are deal-breakers. Also, remember that a home inspection won’t be able to root out deeper and hidden problems.
If you are buying in a market where demand is high, you may be pressured to forego an inspection. In this case, it is a smart idea to bring a person knowledgeable about building systems and construction so that they can give you some insight into the condition of the home.
Making Smaller Down Payments
Although a 20% down payment on your home can result in benefits like lower mortgage rates and exempt you from private mortgage insurance costs, there are smaller amounts that you can pay with as well.
A PMI does not account for a major expense since it is only about 0.5 to 1.5 percent of your yearly mortgage balance, which means if you have a mortgage of $400,000, the PMI will account for as little as $200 extra per month. The PMI rate is also determined by your credit score, so if your score is high, the PMI rate may be negligible.
If you are thinking of saving up to make a bigger down payment, remember that home prices can increase at any time and can outpace the rate you save. Plus, higher expenses in other areas of your life may not make it worthwhile for you to wait.
Making a smaller down payment also means you will have some money saved for any repairs you need to make.
Home buyers have the option to make use of different types of financing when applying for a mortgage based on their individual financial health. Some loans allow home buyers to make smaller down payments and help them qualify for a mortgage even with low credit scores.
However, keep in mind that you should never buy a home that you cannot afford. Start calculating how much budget you need for a new home, including the cost of insurance, repairs, etc., so that you are not caught unaware when finding the right house.
Market Outlook For 2022 and Beyond
After over a year of the red-hot housing market and skyrocketing demand, the housing market is slowing down. Home sales activity was stronger than predicted in 2022, but the rising prices have led to a downward trend since then. According to Realtor.com, the year 2022 will see a 6.7% decline in house sales.
In the second half of 2022, the home price growth rate will become moderate and will show an upward forecast of 6.6%. This shows a 2.2% increase in growth rate from the previous forecast.
Over a decade of shortage in housing construction combined with about two million Millennials entering the home-buying stage has led to a wide gap in the demand and supply in the housing market in the US. Hence, home buyers should not expect prices to slump despite rising mortgage rates.
Having said that, the housing market is not expected to crash in 2022 or the following years. Price growth rates have cooled down, though prices will continue to rise at a slower rate. In the coming 24 months, the housing market is expected to see positive home appreciation.
Are you seeking prequalification for financing your home? At Integrity Mortgage LLC (NMLS #1692497), we can provide you with competitive mortgage terms and help you apply for a loan within a few minutes. We have a quick and hassle-free online application process that can match you with the right financing option for you. Check out our residential mortgage options today at Integrity Mortgage LLC (NMLS #1692497).