According to Reuters, the average interest rate is now more than double what it was a year ago for home mortgages. Many people getting a 30-year mortgage can expect a rate of 6.7% or more. This rate is higher than many home-buyers in the market now have ever seen.
First time home-buyers in 2021 were 34% and were increasing. That probably held right up until May of 2022. Today, these first-timers are seeing enormous interest rates and comparing that to their relatively-low income (vs those who are older) and going right to the rental websites. These guys are being priced-out of the market. Prediction 1: Look for an increase in rental demand and in increase in rents.
We are already seeing time on the market for houses creeping up. Remember six months ago? A house was sold usually in the first 24 hours and had multiple offers. That house usually sold for over asking price and had very few contingencies (inspection, financing, etc.). Today, we are back, closer to the typical wait on the market and offers below asking. The whole segment of first-time buyers will be priced-out. Prediction 2: We will see houses stay on the market longer and housing values fall.
In this market, cash is king. Those who have cash can put more money down, and decrease their interest paid on their mortgages, effectively decreasing their interest rate. These lucky few will enjoy lower prices and higher rents. Prediction 3: If you are looking to upgrade your single-family to more expensive multifamily, now is the time. In a year, you’ll have trouble selling for a price you need.
Inflation continues to burn your cash. Every year at 9% inflation, your $100 Benjamin is worth what $91 purchased last year. The Fed will continue to raise rates as long as inflation stays high. Prediction 4: We see mortgage rates in the double digits by March 2023. I know, I just said cash is king, but the king ages every year. Use him to make your purchase now before he is worth less (though not worthless).
The train is leaving, my friends. It may be stinky, loud, and burning fuel like crazy, but if you are not on it now, you won’t see the next one for 5 years. It’ll probably run on electricity. That’s my bonus prediction. Let me know your predictions.