There is a lot going on right now in the real estate market in Northern Virginia. Inflation is at a record high with consumer prices 9% higher than they were last year and the highest rates in 40 years. Home prices remain high and inventory remains low. Additionally, interest rates has scared many potential home buyers into taking a pause. And many experts are predicting these trends to be with us for while. This article looks more closely at these factors and help to answer the question. Should you buy a home now or wait until 2023?
The Housing Affordability Index (HAI), produced by the National Association of Realtors (NAR) “measures whether or not a typical family earns enough income to qualify for a 30-year fixed mortgage loan on a typical single-family home without spending more than 25% of the income on payment for principal and interest.” By metropolitan area, Northern Virginia falls into the category with the Washington DC metro area. According to First American Chief Economist Odeta Kushi, “So while nominal house prices in the D.C. metro have surpassed the 2006 housing boom peak, house buying power is much higher than what it was back then, thanks to lower mortgage rates and higher household incomes,” Kushi said. “So house buying power has more than kept up with nominal prices.” So in terms of affordability, the Northern Virginia area salaries and mortgage rates are keeping pace with the cost of homes, at least for now. It’s still very important for potential home buyers to know exactly where they stand by talking to a financial advisor or mortgage lender.
There is still a lack of homes for sale on the market compared to the demand of buyers. According to this Bloomberg article, new construction homes nationwide are said to have 8 months supply of homes while resale homes have less than a one month supply. From this perspective, we remain in a seller’s market. For homebuyers, the concern is a lack of choices and finding the “dream home”. Still with buyers pulling out of the market, it means that buyers who do find the right home, they are able to negotiate more terms than this time last year or the year before. So here is more to consider when you wonder if you should buy a home now or wait for 2023.
HIGH INTEREST RATES
As of today, interest rates were close to the 6% mark yet again. This hampers how much a buyer can spend on their home. Still, some buyers are able to use some of their savings to buy down interest rate points. Others are taking advantage of Adjustable Rate Mortgages (ARMs) where they start with a lower percentage point and adjust the rate further along the road. Even if buyers didn’t take advantage of these, the rates are not so astronomical that they couldn’t still qualify and refinance their homes once interest rates go down.
HOME PRICES UP
Home prices seem to continue going up in Northern Virginia. Each year the median home sale value of a home goes up as seen in this graphic below. A home that sold for $485,000 in 2019 is not selling for $134,000 more this year. If buyers are waiting for home prices to fall, they may be waiting a very long time. In the meantime, rent prices are expected to also keep going up year after year. The question is whether a family decides to keep renting or start living in a valuable asset.
RENTING VS. BUYING
For the first time ever, the national median rental costs over $2,000. This is according to NPR. So what was happening in the housing market 2 years ago is happening in the rental market now. As buyers backed out of looking, the shifted their attention to finding a home to rent. Competition to get a rental increased and prices followed suit. “The increased demand for rentals from people who would rather buy a home is likely to continue. Mortgage applications to purchase a house are 21% lower than a year ago as rising interest rates continue to price more would-be homebuyers out of the market.”
So, should you buy a home now or wait for 2023? It may be that the conditions now in 2022 will continue next year as well. So, if you are serious about buying a home and are qualified, you should be looking for the home that meets your needs and possibly offers one or two features on your dream list. Then, it will be good to work with your lender on resourceful ways to get a good interest rate or monthly payment plan. You can also negotiate with the seller of the home to ensure you are getting what you are paying for.
Northern Virginia is still a great place to buy or own a home. The value of homes consistently go up each year despite market conditions.
Questions/Concerns? Please contact me.
Also feel free to compare this update with last month’s Market Update – August 2022