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Buying a home isn’t the easiest prospect these days. Keep reading for finance expert Suze Orman’s take on mortgage loans right now and going forward.
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If you’ve been watching your local housing market, eagerly hoping for the chance to pounce on the home of your dreams, the current conditions are no doubt depressing. I originally hoped to buy a home myself this year, but decided instead to pin my hopes on 2024 and spend 2023 saving money and otherwise putting myself in the best possible position to buy (more on that below).
Today’s market is ruled by a few factors: low housing inventory, higher prices, and much higher mortgage rates than we’ve seen in several years.
On a recent episode of her podcast Women & Money, finance expert Suze Orman took a closer look at the current conditions and offered some insight into why potential home buyers are having a hard time and what we can expect going forward. Let’s take a closer look.
Rates remain high…
As Orman discussed, the federal funds rate was bumped up again at the end of last month, and now stands at 5.25%–5.50%. It’s important to remember that this is the interest rate for banks and credit unions to lend to each other, and isn’t a direct reflection of consumer interest rates on credit cards, personal loans, and mortgage loans. But when this rate is up, other rates tend to rise as well.
Mortgage loans are special in that their rates are tied to the bond market, and the demand for mortgage-backed securities impacts mortgage rates. It’s a terrible time to get a mortgage, as rates are currently more than double what they were before they started climbing early last year — 6.96% is the average rate on a 30-year fixed-rate mortgage loan, per Freddie Mac.
…while inventory remains low
Orman points out that these higher rates are having a definite impact on the supply of homes available. As she pointed out, 92% of Americans with a mortgage have a rate under 6% — and of those, 61% have a rate under 4%, and 23% have a rate under 3%. Under the current conditions, no one wants to sell a home and take on a much higher mortgage interest rate to buy a new one. Hence, low inventory — existing home sales declined 3.3% in June, according to NAR.
And the homes that are for sale are going for higher prices. Per the St. Louis Fed, the price of houses is rising again, from a dip in January 2023. In that month, the median price of a home sold was $361,200. But as of June 2023, that median price was $410,200. Ouch.
Is there any hope for the future?
So all of this is quite discouraging for wannabe buyers like you and me. And Orman doesn’t think we’re going to see plummeting mortgage rates anytime soon. She did note that this current situation is well outside the norm. This is perhaps not so surprising, since we all lived through a once-in-a-century global public health crisis and we’re all still very much feeling the effects, financially and otherwise.
As Orman put it, “It seems like real estate prices are here to stay for a while yet. I don’t know what would bring them down, to tell you the truth, besides a recession.” Whether we’ll see a recession this year or next remains to be seen, but so far, the economy is humming along.
How can you get ready to buy a home?
Want to buy a home anyway? I’m with you — I’m excited that my renting days could soon be behind me. Here’s what I’ve been doing, and what you should do, too, if you want to be in the best position possible to get a mortgage loan.
Save money: A home is likely to be the biggest purchase you’ll ever make, so the more cash you can put aside for it, the better. Remember, not only do you need a down payment and money for closing costs, but also for the other costs of homeownership.Boost your credit: The stronger your credit score, the better the mortgage rate you can qualify for. So it’s worth making a new commitment to pay all bills on time every month and go through your credit report to see if there are errors you can have removed.Pay down debt: Got existing debt? If you can improve your earnings and pay down some current debt, you’ll not only improve your credit score, but you’ll free up wiggle room in your budget for those new costs you’ll be taking on.Shop around for a mortgage: When it’s time to buy, get rate quotes from multiple mortgage lenders. This’ll give you the best shot at getting your best possible rate.
It’s not an easy housing market these days. Stay positive, friends — and take the time to make yourself the best buyer possible.
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