Over the last few years, home prices saw an unprecedented spike. The value gains in real estate during the period even surpassed those after the subprime mortgage crisis in 2008. The market’s been hot to say the least and beyond the reach of the average home buyer. The prices have begun to stabilize from the earlier far-fetched valuations. Naturally, the home buyers are skeptical of buying homes during this cooling period. So, are we headed toward another mortgage bubble burst? What if you buy a house and it depreciates further? Or, should you stake out this cooling period? If these questions have been bothering you, we got you covered.
When are home prices are coming down?
Many US cities are experiencing a decline in prices compared to 2021 and early 2022. Some of the contributing factors have been a natural price correction due to reduced home buyer demand after the pandemic. Selma Hepp, deputy chief economist at Corelogic, has indicated that home prices peaked earlier this year and most overpriced markets are witnessing a correction. This downward trend is expected to continue to at least the first half of 2023.
According to Attom Data Solutions, the U.S. median home sales price fell 2.7% from the second quarter this year to the third.
What happens if the price of your newly bought house keeps sliding?
In the short term, property prices may not increase always. However, historically, they do almost always go up over time. You shouldn’t be too frazzled by a temporary price drop if you intend to keep the house for a long period. You could be ‘underwater’ for a short period when prices fall. ‘Being underwater’ is a term used when a borrower owes more on his mortgage than the property is worth. The typical homeowner keeps this house for 15 years on an average. But, if you plan to liquidate the asset quickly, you may have to bear a financial loss.
Is it a good time to buy a house?
With falling interest rates and home prices, the affordability factor for potential buyers has increased. This scenario is likely to remain almost the same in 2023 too. Before buying a house, you should evaluate your financial capacity to service a mortgage at today’s interest rates. This holds true for people who aren’t looking to sell off the house in the short term. December, generally considered a slow month for mortgage business, might actually get you a good bargain owing to lesser competition among lenders.
Historical Trends
Interest rates that doubled over the course of 2022 fell for five consecutive weeks and sat at 6.31% as of Dec. 15. If you are able to buy a home today, you could always get it refinanced in a few years at a lower interest rate. And this will not be possible if you are renting.