Does the housing affordability crisis make you skittish about buying a home? Are you trying harder than ever to keep more money in your bank account? You’re not alone, especially if you’re a first-time homebuyer.
After watching home prices blow up like a pandemic-inflated balloon in 2021 and 2022, homebuyers are understandably worried about whether it still makes sense to pursue homeownership.
While the era of double-digit home price inflation seems to be coming to a close, economic headwinds are still driving many would-be homebuyers away from the market. Here are a few factors that make 2023 a difficult time to buy a home.
Resolve $10,000 or more of your debt
Credit card debt is suffocating. It constantly weighs on your mind and controls every choice you make. You can end up emotionally and even physically drained from it. And even though you make regular payments, it feels like you can never make any progress because of the interest.
National Debt Relief could help you resolve your credit card debt with an affordable plan that works for you. Just tell them your situation, then find out your debt relief options.
How to get National Debt Relief to help you resolve your debt: Sign up for a free debt assessment here. (Do not skip this step!) By signing up for a free assessment, National Debt Relief can assist you in settling your debt, but only if you schedule the assessment.
According to the National Association of Realtors, mortgage costs as a percentage of the homebuyer’s total income have been rising since 2020 (14.7% in 2020 vs. 27% in 2023) and the composite affordability index has been decreasing.
In short, with the median home price at $416,100, houses are too expensive right now for a lot of people to afford. You may be better off keeping money in your bank account and not overpaying for a house.
While there are a few more houses for sale now than there were in 2021 or 2022, housing inventory remains historically low. With few homes on the market, prices remain high due to scarcity.
High interest rates
High mortgage rates are keeping many would-be homebuyers out of the market. High rates substantially raise the monthly payments for borrowers.
To illustrate this, the principal and interest payment on a $320,000 mortgage goes up by $600 per month when the interest rate jumps from 4% to 7%. Most people don’t have that much wiggle room in their budgets.
Don't let home repairs drain your bank account
Did you know if your air conditioner stops working, your homeowner’s insurance won’t cover it? Same with plumbing, electrical issues, appliances, and more. Not being able to make repairs could leave you in a bad situation — but a home warranty could protect you against surprise expenses.
Whether you’re a brand-new homeowner or you’ve owned your home for years, a plan from Choice Home Warranty could pick up the slack where homeowner’s insurance falls short.
If a covered system in your home breaks down, you can call their hotline 24/7 for assistance to get it repaired. They have a network of over 15,000 technicians that can assist you, making sure any issue can be taken care of swiftly — without breaking the bank.
Not sure if it’s for you? Rest easy: they were named one of the "Best Home Warranty Companies" by US News 360 Reviews and were awarded Best Company's 2020 Consumer's Choice Award. For a limited time, you can get your first month free when you sign up for a Single Payment home warranty plan.
We’ve been holding our collective breath for months waiting to see if a recession will happen.
Economic growth is projected to slow for the remainder of 2023 and then pick up in 2024 or 2025, but economists seem to be giving mixed reviews on what lies ahead.
This may give homebuyers pause, urging them to wait for more certainty.
High property taxes
Tax assessors have finally had a chance to update their property value assessments, increasing property taxes to correspond with higher property values.
This means the monthly tax burden of owning a home has increased and might not be worth it right now.
Increased insurance rates
Like most other things, homeowners insurance has steadily increased. According to information by Quadrant Information Services, insurance premiums are up about 3% since last year.
What’s worse, some companies are excluding natural disaster coverage in certain geographic regions, leaving many homes vulnerable.
A forecast by Metlife Investment Management predicts that institutional real estate investors may control 40% of the housing market by 2030.
The families looking for housing on Main Street are facing increasing competition from Wall Street investors looking to bolster their portfolios.
This is troublesome because real estate investment trusts (REITs) and other investment firms have deeper pockets than most consumers and can buy homes for cash.
Inflation has eroded the purchasing power of Americans in the last few years. While prices have stopped rising at such astronomical rates, they haven’t gone down much.
With everything from milk to gas to furniture increasing in cost, this leaves little room in the American budget to deal with the increased cost of owning a home.
Inflation wouldn’t be such a big deal if wages were keeping up with the rising prices. Unfortunately, this hasn’t been the case. At its peak, price inflation had risen 9.1% whereas wages had risen 6.7%.
Wage growth managed to outpace inflation in August 2023, but it remains to be seen if it can make up for the ground it has lost in recent months.
Existing mortgage rate
Maybe you want to sell your home to downsize or upgrade, but if you’ve got a 3% interest rate on your current mortgage that you locked in a few years ago, changing to one with a 7% interest rate is a tough pill to swallow.
This may deter you from buying a home when you would in a different economic environment.
Over 230,000 people have been laid off in 2023 — and that’s just in the tech sector. While the volume of layoffs has slowed since the beginning of the year, they haven’t stopped.
If you fear that your job is on the chopping block or it’s in a sector with a lot of job losses, you may want to hold off on buying a house until your job is more secure.
Americans did a great job-saving money during the pandemic (thanks, Economic Impact Payments), but they’ve been saving considerably less since then.
Savings rates have been hovering around 3% or 4% for the last two years, which is much less than in previous years.
This low savings rate suggests that many families are struggling to save enough money for a down payment.
Many states and the federal government have upcoming legislation that, if passed, could ease the housing inventory and affordability problems we’ve seen in recent years.
For example, the federal YIMBY (Yes, In My BackYard) Act could change zoning laws to allow for more affordable housing options, such as duplexes, manufactured homes, and more densely placed single-family homes.
This would give homebuyers more affordable homes to buy in the coming years.
Local home prices
In general, home prices have risen sharply from pre-pandemic levels, but certain areas that saw bloated home values during COVID are now coming back down to earth.
Once-hot markets like Washington, D.C., Utah, and Idaho have seen 4%-5% declines over the last year.
If you’re looking to buy on the West Coast or in the Intermountain West and you believe these prices haven’t hit bottom yet, it may be worth waiting to jump into the housing market.
Too much debt
Consumer debt in American households has continued to rise over the last decade.
If you find yourself with car notes, student loans, medical bills, credit cards, and other debt balances, now might not be the right time to take on a mortgage.
Lack of value
Maybe you’re one of the lucky few who can afford the high prices and high-interest rates of the current housing market.
But even if you find a house that meets your budget, you may not get very much house for your money.
If the houses you can afford are in poor locations, too small, or in need of expensive repairs that would make it hard to get ahead financially, it may be worth sidelining your home purchase until you’ve saved more or housing conditions improve.
Buying a home is a personal decision that should be guided not only by national trends like higher interest rates but also by your personal financial situation and goals.
Even if national economic indicators are bleak, if you find the right deal that fits within your budget, now could be a great time for you to own a home and start building wealth.
Despite the high prices and expensive mortgages, economists are not forecasting another housing crash like we experienced in 2008. Given that housing prices are unlikely to tank, those who buy a home will likely gain equity over time, even if home prices fall somewhat in the short term.
More from FinanceBuzz: