There’s a lot to consider when it comes to the current housing market. While it may seem a bit uncertain, there are definitely reasons to be optimistic! Yes, mortgage rates may be rising right now, but the good news is that they’re likely to drop again in the future as the housing market works towards finding balance. Of course, this may make it more challenging to decide whether to rent or buy. So, let’s dig in!
If you’re in the market for a new home or considering refinancing your current one, you may have noticed some changes in the mortgage rates lately. At the beginning of the year, the rates were in the high 5’s and low 6’s, which made for a strong start. However, due to news about economic uncertainty, the rates are starting to rise again, and as a result, the demand has been dampened .
Now, before you start panicking, experts are saying, “the economy is showing signs of resilience”  despite this uncertain environment. We can see a pattern in history where the 30-year fixed mortgage rate and 10-year treasury yield have mirrored each other. As the treasury yield rises and falls, mortgage rates tend to follow along. On average, the mortgage rate is about 1.79% higher than the treasury yield. At the beginning of the year, that spread was about 2.79%, and it has slightly increased over the past month.  But don’t worry, a return to the normal spread and a subsequent drop in mortgage rates is ahead of us.
Now, let’s talk about a long-term challenge the market has been facing: low inventory. After 2008, the number of completed single-family homes was below the 52-year average for 14 years!  Although this has created a challenge for buyers to find the home they are looking for, it has also kept the market from crashing like it did in 2008 by keeping upward pressure on home prices.
To Rent or to Buy?
So, the big question remains, should you rent or buy? The answer will be different for everyone, based on their own personal and financial situations, but here’s what we do know. The cost of renting ALWAYS increases, and you’ll always be spending more and more on your rent . On the other hand, home values ALWAYS go up over time . Let me give you an example based on the Home Price Expectation Survey : Say you purchase a $400K home in Jan 2023. By the end of 2024, after 1 year, that home may only be worth about $395K. However, after 5 years, that same home would be worth about $450K.
If you’re still not sure, let me share some more good news with you. In Q3 of 2022, the average equity gain of a US homeowner was $34.3K, which is a 15.8% gain . That’s a significant increase in your net worth just by owning a home! Homeownership is the long game, and although 2023 may see some depreciation, that will eventually become appreciation in the following years.
In summary, while the current housing market may seem uncertain, there are reasons to be optimistic. Although the mortgage rates may be rising now, we can expect them to drop again in the future as the housing market continues to work towards equilibrium. Although that may make the decision to rent or buy more difficult, keep in mind that the cost of renting is continually increasing, while homeownership is a long-term investment that can lead to significant equity gains over time. So although finding the perfect home may be challenging, homeownership is truly an investment in your future.