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You may want to put your plans on pause.
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There are certain benefits you get to enjoy when you own a home instead of renting one. For one thing, you don’t have to follow the rules a landlord sets. Want a giant dog? That’s your call. Also, there are tax benefits to owning a home, like getting to deduct the interest you pay on your mortgage.
But while you may be eager to purchase a home in 2023, housing market and economic conditions are making it a less-than-ideal time. And so here are a few reasons to consider holding off.
1. Home prices are still up
Although home price gains have slowed in recent months, property values are still up nationally. This means you’re looking at paying a higher price than normal for pretty much any property you buy (there may be limited exceptions in markets that are cooling at a faster pace).
Now it’s generally not a good idea to overpay for, well, anything you buy. But overpaying for a home can be particularly dangerous. What if your circumstances change and you need to move in a couple of years? If you pay $450,000 for a home that would normally sell for $400,000, and then get stuck having to sell it a few years later, you might lose money.
2. Borrowing rates are up
While home prices have been elevated for quite some time, last year, buyers at least got a reprieve from a mortgage rate perspective. But this year, borrowing costs are way up.
In fact, right now, you’re looking at paying twice the interest rate on a mortgage as you would’ve back in late 2021. And when you combine higher mortgage rates with higher home prices, you run into a situation where you’re looking at spending an uncomfortably large amount of money on housing.
3. A recession could hit
For much of the second half of 2022, economists have cautioned that a recession could strike in 2023. And taking on a large expense like a home could be a dangerous thing in light of that.
Granted, you’re not guaranteed to lose your job if a recession strikes. And also, a recession isn’t a sure thing. But you may not want to take the risk of buying a home at a time when so many experts seem convinced that economic conditions are about to worsen. This especially holds true if you’ll be stretching your budget to purchase a home due to higher prices and borrowing rates.
Sometimes, it pays to wait
It’s easy to see why you wouldn’t want to put off homeownership if you’ve been saving for it and feel ready to take that leap. But based on the state of the housing market and the potential for an economic downturn, it could pay to keep renting in 2023 and avoid taking on the expense of a home.
Waiting will also allow you to build up a larger savings account balance, whether for a larger down payment or emergencies in general. And that could really work to your advantage once you do dive into homeownership.
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