This Summer, Home Values Will Rise at the Fastest Pace Since 2014
The year following an election is traditionally a turbulent one for the nation’s housing market as the new administration’s legislation and priorities always seem to shake things up. This year is definitely no exception. But, what home buyers are going to have to contend with this year is not just rising interest rates, but rising home values, as well. This can make achieving the dream of homeownership more challenging than ever for some renters.
Home values are rising because the housing inventory is very light right now. While it is true that new construction is also up, the sheer demand from buyers looking to get in before the rates start climbing is at an all-time high, creating an imbalance. As a result, home prices are climbing at more than double the rate of inflation and wage growth. This summer, you can expect investors to remain a major part of the buying market as they continue the trend of purchasing properties and converting them over to rental units.
So, how can you plan to deal with the combined challenge of rising home values and interest rates? Here are some ideas to consider.
Adjust Your Sights
If you’re looking to buy your first home but the threat of rising prices has you reconsidering, don’t let it throw you off your goal. While it is true you might not be able to afford the four-bedroom single family home you have your sights on, there will still be properties out there that you might have an easier time affording. You may just have to adjust your sights and start looking at townhouses or semi-detached homes instead.
Save as Much as You Can for the Down Payment
How much you have saved up to put down on a home will impact everything from your mortgage payment to the interest rate you get. With home values climbing, you will want to aim for more than the usual 20% down payment if at all possible. Even if you have to move in with your parents for a short time, or borrow some money from them, saving up as much as possible will help you offset at least some of the problems associated with rising prices.
Consider Refinancing If You Already Own a Home
With interest rates starting to go up, you might think now is a bad time to refinance your mortgage, and normally you would be right. But, right now is a unique time because home values are also climbing. This means that the rising value of your home might give you the negotiating power to make a mortgage move that you might not have been eligible for before thanks to an increase in equity.
For instance, you may be able to do a cash-out refinance, which will provide you with the money you need to make even more value-adding improvements to your home or property. Or, you may be able to refinance your home so you no longer have to pay mortgage insurance now that you’re no longer underwater. Another option is to take out a home equity line of credit; however, because these tend to have adjustable rates, you need to weigh the benefits vs. the cost.
Just be aware that any of these options could still result in higher monthly mortgage payments, especially if you put your property taxes and insurance premiums into escrow and prorate the annual costs into your monthly payment.
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