Should I Buy A House Now Or Wait Until 2023?

There’s a growing concern over the state of the economy. Soon after the country emerged from the nationwide COVID-19 pandemic, inflation caused prices to rise across the board. Gas, food, and the general cost of living have increased by a substantial amount in a short amount of time, leaving many wondering if they should buy a house now or wait until 2023.

The housing market in particular has been affected by the changing economic factors. House prices have been rising steadily for the past few years, but the rate of increase has accelerated in 2022. US house prices have increased by 19.2% in just a year. The statistic is an astonishing increase that is comparable to the years leading into the 2008 crisis, which had a 12-month increase of 14.5%. The current comparable figures and circumstances to the years of the late 2000s have prompted concerns that we’re again in a housing bubble that will eventually burst. In this blog post, we go through what a housing bubble is, if we’re in one, and whether or not you should buy a house in 2022.

 

What is a Housing Bubble?

A housing bubble or real estate bubble is a market state where house prices have risen dramatically due to overwhelming demand and limited supply. Real estate speculators (buyers who take on excessive investment risks to make a profit) and eager property buyers fuel the demand of the housing market until prices are driven to unsustainable levels. The bubble bursts when demand suddenly falls, leading to a sharp drop in prices. Prices are known to level out and even slow in the housing market, but they rarely fall dramatically. The looming concerns over a possible recession have caused many to believe that we are in another housing bubble that could burst sometime soon.

 

Are We in a Housing Bubble?

Despite the reasonable comparisons to the 2008 crash and the extreme rise in housing prices across the board, many experts have stated that we are not currently in a housing bubble. However, that doesn’t mean that we are far from a real estate bubble forming. Here are a few reasons experts have given for us not being in a housing bubble similar to the infamous 2008 crisis.

1. Experts Predict The Market Will Slow Down

It’s extremely rare to see house prices drop sharply across the market. Typically, home prices drop enough during housing market crashes to where it would be considered a “bubble.” However, many experts are saying that they predict that prices will level out or that the rising prices will slow. We are already seeing the demand for houses fall because of inflation, higher mortgage rates, and fears of a recession. The U.S. Census Bureau reported the annual rate of new home sales fell 17% between March and April of this year.

2. Inventory is rising

A lack of supply and an overwhelming amount of demand is largely responsible for the current housing market conditions. The pandemic had a significant impact on the construction of new homes, which in turn has helped to create the low inventory and high prices that we’re seeing now. However, a recent report from Zillow shows that the supply of houses increased steadily in March and April. There’s a long way to go to balance the market but it could be a sign of inventory getting back to pre-pandemic levels.

3. Foreclosures Are Low

Going into the 2008 crash and after, foreclosures increased to more than 81%, which dramatically dropped the prices of houses. We are not seeing that now. Even with mortgage rates rising to 6% from 3% just last year, Matthew Pointon, senior property economist at Capital Economics, wrote “the prevalence of fixed-rate mortgages, tight credit conditions, and a relatively healthy labor market still rules out a price crash.”

4. Lending Practices Remain Strict

A huge factor that played a role in the housing market crash of 2008 was the incredibly lenient lending practices and frequent mortgages offered to people with poor credit otherwise known as subprime mortgages. The deterioration of lending standards paved the way for unreliable investors, buyers, and speculators to enter the market and drive prices up. This, of course, led to mass defaults on mortgages and caused the housing bubble to burst.

Although many experts agree that the current market is not a housing bubble, there are others who dissent. Researchers at the Federal Reserve Bank of Dallas released their findings, “Our evidence points to abnormal U.S. housing market behavior for the first time since the boom of the early 2000s. Reasons for concern are clear in certain economic indicators—the price-to-rent ratio, in particular, and the price-to-income ratio—which show signs that 2021 house prices appear increasingly out of step with fundamentals.”

The Dallas Fed researchers have concluded that there are many concerning behaviors in the housing market that they believe could be warning signs of another housing bubble forming. But the news is not all bad. They also found that “there is no expectation that fallout from a housing correction would be comparable to the 2007–09 Global Financial Crisis”.

 

Is Now a Good Time To Buy a House 2022?

With all of the concerns with the economy and real estate, you may be on the fence about buying a home. It’s important to remember that such an investment is a long-term one. While it’s impossible to say definitively whether now is a good time to buy or not, there are a few things you should consider before making a decision.

1. Likely To Pay More For a House Currently

In this competitive seller’s market, house prices have risen and buyers are still paying above the asking price in many scenarios. Mortgage rates rising on top of that could make your monthly mortgage payments a lot higher than they would have been even just a few months ago.

2. Fears Of A Recession

While many experts are optimistic about the future of the economy, there is still a lot of uncertainty. If a recession does occur, it could have a significant impact on the housing market. If you’re not in a position to weather a potential economic downturn, it may be better to wait to buy a house. A prolonged recession can also make housing prices drop significantly which could mean you could buy a house for much cheaper in a few years.

Negotiator Shae Spitz, a real estate agent based in the small community of Columbus, Nebraska, has worked through the various ups and downs of the real estate market and shares her insights on the current market:

“We are starting to see a slow down in the market. Inventory is still low but demand is not as high. If you love the home and it makes financial sense for you, then don’t wait to buy real estate, buy real estate and wait. As history has proven, property value appreciates over time and as long as you don’t HAVE to sell during a down turn, then the market values won’t effect you.” – Negotiator Shae Spitz

3. Late 2022 May Be a Better Market

Part of the reason the 2020 housing boom happened was because of the historically low mortgage rates. December of 2020 saw rates at 2.68% and now we are seeing mortgage rates at 5.89%. With mortgage rates rising, the market should cool off in late 2022 according to real estate experts. Mortgage expert Ivan Simental discussed how the housing market looks for home buyers right now, “I think late 2022 is going to be a better market because interest rates have gone up. A lot of individuals will get priced out of certain markets, meaning that they won’t be able to afford what they were pre-approved for six months ago.”

 

Only You Can Determine if Purchasing a Home is Right For You

There is no easy answer when it comes to whether you should buy a house now or wait until later. It ultimately comes down to your personal circumstances and what you feel comfortable with. Make sure to consider all of the pros and cons before making a decision. And if you do decide to buy a house, be prepared for all of the costs that come with homeownership. Check out our blog post that goes through all of the costs of homeownership.

 

Buying a House? A Negotiator Can Help You Navigate The Competitive Market

A great real estate agent that has the expertise to navigate the market can help buyers immensely by doing a lot of the work for them. A great agent will also have a large network, have access to houses before they are even listed, and understand all of the ins-and-outs of buying a house in the local market.

However, not all real estate agents are great. Luckily, we have created a real estate organization that streamlines your search for a high-quality real estate agent otherwise known as a Negotiator. Negotiators are real estate agents that have all proven themselves to be top performers in their local real estate markets. By hiring a Negotiator, you’ll have someone on your side who has a wealth of real estate expertise and an unrivaled work ethic working to get you the best deal possible.

Contact your local Negotiator if you want to work with a great real estate agent.