Despite the record-low interest rates in 2020, it’s still an excellent time to buy real estate. However, rates have gone up this year.
The low-interest rates initially made buying a home affordable, but the market quickly adjusted due to the rising prices. Due to the increasing costs and rising rates, many buyers are now priced out of the market. Despite the low-interest rates, the housing market is still experiencing a slowdown.
It Depends on Your Intent
While it may seem trivial, investing in real estate can mean buying or leasing a property. It’s important to consider how you’ll finance the purchase and how it will affect your financial situation.
If you’re planning on living in the area for a long time, it’s essential to consider if it’s a good idea to buy instead of rent. A steady income may allow you to lock up a down payment and avoid paying transaction fees and closing costs. According to experts, having at least seven or eight years of living in the property is essential to see if it’s a good investment. If you’re an owner-occupier, you must consider the house size you may need in the future. Having a bigger home may allow you to afford to buy it now and grow it over time.
If you’re planning on renting, your financial considerations differ from those of an owner-occupier. For instance, you need to consider the expenses of maintaining the property and the rental market. Also, you’ll have to put more money down, which typically ranges from 25 to 30 percent.
Consider Rising Interest Rates
The low-interest rates initially made buying a home affordable, but the market quickly adjusted due to the rising prices. These rates are at elevated levels, which may make homeownership less affordable, depending on your situation.
If you’re planning on refinancing or taking out a home loan, it’s essential to consider the rising interest rates and the likelihood of a recession. On the other hand, if the Fed’s actions lead to a recession, then mortgage rates may go back down.
Don’t Count on Falling Prices
The low-interest rates initially made homeownership more affordable, but the market quickly adjusted due to the rising prices. After a period of low supply, the supply of houses started returning to the market in early 2022.
According to some experts, the market for residential property is currently “normalizing.” There has been a significant increase in the number of sellers who are willing to reduce their prices to get a deal done. Despite the price decline, there’s no cause for alarm. Prices are falling, but not quickly.
Ultimately, Consider Your Personal Finances
One of the most critical factors you need to consider when investing in real estate is your financial position. If you’re planning on renting, you need to make sure that you can pay the rent and keep the property. On the other hand, landlords must have enough money to cover the mortgage and repairs.
Despite the improving market conditions, it’s still important to consider the factors affecting the real estate industry. For instance, if you’re planning on investing in a property, you might want to be more conservative with your finances.