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Housing costs are near the highest they have ever been, but people aren’t going to stop moving anytime soon.
While many prospective homebuyers are choosing to sit the current market out amid mortgage rates near 7 percent and generationally high inflation, thousands of people will still need to move in the next year and will need help navigating the pricy market. Economists from the online brokerage Redfin offered their advice for navigating the high-rate market in a news release distributed on Wednesday.
They advised homebuyers who feel they have to enter the market right now to watch their budgets closely and consider the rising costs of other necessities when assessing their housing costs.
“For people who are buying a home right now, make sure you don’t stretch your budget,” Daryl Fairweather, Redfin chief economist said. “Mortgage rates are high and inflation is causing prices of most other things to rise, too. Ensure you have a pad of savings to cover emergencies and that every dollar isn’t going to your down payment and monthly mortgage payments.”
When speaking with clients about financing, it’s important to remind them that more should go into their decision than just mortgage rates, experts said.
“There’s more to the decision than just mortgage rates and where home values are headed,” Redfin Deputy Chief Economist Taylor Marr said. “Those things are important, but a lot of other factors —like how long someone plans to stay in a home and their risk tolerance — matter, too. If someone is going to stay in a home for 10 years, it’s unlikely the home will lose value.”
Reminding homebuyers of the ways they stand to benefit from high rates can also be a beneficial strategy.
“There is a silver lining to high rates: Competition is low and buyers have the opportunity to negotiate with sellers,” Marr said.
Marr recommends helping buyers be strategic about their budgeting by pricing predicted price declines into their negotiations.
“Buyers should account for the fact that home values are likely about to decline when determining their offer price,” Marr said. “Say you’re comfortable paying $475,000 for a home. If you believe home prices will decline by 5% in the next year, price that into your negotiations. Offer $475,000 on a $500,000 listing. When prices were soaring at the height of the pandemic and expected to grow 10% year over year, buyers often priced that into offering over asking price, and it also works the other way around.”
Overall though, the state of mortgage rates has made renting the more realistic option for most Americans.
“It nearly always makes more sense to rent if it’s a short-term living arrangement or you need flexibility to move at a moment’s notice,” said Chen Zhao of Redfin’s economic research lead team. “But now renting makes financial sense for a bigger portion of the population. Prospective first-time buyers who don’t have cash for a big down payment may continue renting because they don’t want a huge mortgage and the risk of sinking underwater when a recession is looming. Also consider how you’re putting your money to work: Renting makes more sense if you can put what you would have used for a down payment into another investment that’s likely to grow in value.”