Don’t Wait for a Spring Thaw to Buy a Home
Now that the U.S. has regained its job-creation mojo, as the October employment report showed, the demand for housing is only going to grow.
After all, when people have jobs they can break off and form new households—ditching the roommates behind or finally moving out of Mom and Dad’s basement—and that’s what fundamentally drives home purchases.
Most of the households created over the past two years have been renting households, but based on U.S. Census data for the third quarter of this year, it appears that homeownership has started to recover.
This especially makes sense now that it is cheaper to own than rent in more than three-quarters of the counties in the U.S. And it’s not getting better— rents are rising year over year at twice the pace of listing prices. Meanwhile, mortgage rates remain at near record lows but appear poised to increase over the next year. And home prices are rising, too.
So if you qualify for a mortgage and have the funds for a down payment and closing costs—and if you intend to live in a home long enough to cover the transaction costs of buying and selling—you will be better off financially if you buy as soon as you can. After all, if you are tired of your current home now, you won’t feel better about it in six months.
The top factors driving home shoppers this summer were pent-up demand and recognition of favorable mortgage rates and home prices. These drivers will likely remain well into next year.
Yet demand for housing is extremely seasonal. In most markets in the country, we are conditioned to believe that we should buy homes in the spring and summer. So come each October, plans to purchase shift to the spring. While the school calendar and weather do influence the ideal time to move, many buyers would benefit from buying this fall and winter rather than waiting until next spring.
In October, the percentage of would-be buyers on realtor.com® saying that they intend to buy in seven to 12 months was the highest it has been all year and represented the largest time frame for purchase. Likewise, October produced the lowest percentage of would-be buyers saying they intend to buy in the next three months.
In other words, people’s stated plans point to a very strong spring for home sales. Great, right? But here’s the problem: Inventory isn’t likely to be higher in March and April than it is now. And while inventory should grow in late spring and into summer, it won’t grow as fast as the seasonal demand.
So, if you are ready, consider getting in the market now instead of early spring. You will have more choices and less competition, and you can lock in today’s rates rather than risk rates being 25 to 50 basis points higher. (A basis point is 0.01 percentage point.)
A 50 basis-point increase in rates (for example, from 4.05% to 4.55%) would cause monthly payments to be 6% higher. And that increase would not only affect your monthly cash flow but could also affect your ability to qualify.
So if you are considering buying a home this spring, it’s worth exploring the inventory now and reaching out to a local Realtor®. A new home could be the best gift you give yourself and your family this holiday season.