Why buy now refinance later? The dilemma facing would-be buyers today is to wait until things settle down or move ahead in this unsettling economic environment. More specifically, the question should be, what are you waiting to settle down: mortgage rates, prices, or both?
Mortgage rates haven’t been this high since 2002, so it could be considered plausible that the high rates are temporary. That leads to the question of how long before they start coming down. Looking back further, the average 30-year fixed-rate mortgage, dating back to April 1971, is 7.81%, so the current rate is lower than the 50-year average.
The other variable is waiting for prices to come down. That one is probably not as likely to happen. We have seen some softening of prices for homes on the market due to a decline in sales based on affordability and the resulting increase in inventory.
Sales reached a seasonally adjusted annual rate of 4.09 million in November, down 35.4% from one year ago; conversely, inventory has increased to 3.3 months from 2.1 months one year ago, according to the NAR Housing Snapshot of Existing Home Sales.
While listing prices may decrease, sales prices still rise from the same month a year ago. The National Association of REALTORS® reported the median sales price for November 2022 is up 3.5% from November 2021.
Homes are expected to continue to appreciate and not come down in value, albeit at a much lower rate than was seen in 2021 and even currently in 2022. Historically, homes have appreciated at 4% annually on a national basis.
Why Buy Now Refinance Later
Nationally, the NAR reports that 42% of homes are selling at or above the list price, while 58% are selling for less than the list price.
Lawrence Yun, Chief Economist for the National Association of REALTORS® at their recent annual conference, forecast home price appreciation for 2022 at +10%, for 2023 at +1%, and for 2024 at +5%.
Some experts are calling for a decrease in prices. Ivy Zelman of Zelman & Associates expects national home prices to fall 4% in 2023 and 5% in 2024. Goldman Sachs is expecting a 5-10% decrease in home prices from its peak. Fannie Mae is expecting a 1.5% drop in home prices for 2023. Freddie Mac predicts a 0.2% decrease in values.
Some consumers are anticipating another wave of foreclosures, like the Housing Crisis in the Great Recession of 2008. While the number has increased, it is not expected to reach anywhere near those previous levels.
Homeowners facing difficulties with the labor market and affordability have a significant advantage over those during the housing crisis over a decade ago. Homeowners currently have record amounts of equity which give them options to borrow against the equity or to sell the home for more than is owed.
Returning to the dilemma facing many would-be buyers, “Wait until things settle down or forge ahead now?” Being able to afford a mortgage at today’s rates certainly factors into the decision. If inflation is brought under control and rates do return to “normal”, or at least the new normal, a buyer would be able to refinance the home at the then-current rates.
Home price appreciation has been close to or beating inflation in the past five decades.
Decade
Home Prices
Consumer Prices
70’s
9.9%
7.2%
80’s
5.5%
5.6%
90’s
4.1%
3.0%
00’s
2.3%
2.6%
10’s
4.9%
1.8%
20 + 21
12%
3%
Source … NAR & Bureau of Labor Statistics
First-time homebuyers represent 26% of sales in 2022, down from 50%, its high in 2009. This is the lowest since NAR started the Home Buyers and Sellers Profile in 1981. Desire to own a home is the principal reason 62% of first-time buyers cited.
Holding onto cash during high inflationary times is not good because the purchasing power of the money dwindles. After all, the same dollar can buy less. Moving money into hard assets, like real estate, allows the person to benefit from the inflation on a significant asset. The leverage from using borrowed funds to finance the purchase creates leverage that also works in the buyer’s favor.
Download our updated Buyers Guide and connect with your agent to discuss your options.