Only 17 percent of Americans think now is a good time to buy a home, according to a recent Fannie Mae survey. Between higher mortgage rates, still-high home prices and broader inflationary pressure, postponing a home purchase might be the only option for some. However, what if you wait? Will the real estate market of the future be more favorable for home buyers? This is what the experts think.
Key housing market statistics today
- The median home sales price reached $433,100 in early 2022, according to census figures. That's an increase from $329,000 in early 2020.
- About 43 percent of homes sold in the second quarter of 2022 were within the budget of a family with a median income of $90,000 per year, according to the National Association of Home Builders.
- The average down payment was $35,000 in the second quarter of 2022, an increase of 34.7 percent from the previous quarter, according to ATTOM.
- So far in 2022, existing home sales have been on a downward trend, according to the National Association of Realtors (NAR).
- As of July 2022, the listings remained on the market for two weeks, the shortest period of time on record, according to NAR.
- Existing home inventory reached 1.31 million in July 2022, NAR reports, up 4.8 percent from June.
How much will a house cost by 2030?
While it's relatively easy to predict short-term moves in the housing market, looking ahead to the end of the decade can be quite challenging.
At least for the foreseeable future, home price growth is likely to be much closer to historical norms [between 3 and 5 percent per year] than the record pace we've seen over the past two years.
— Nicole BachaudSenior Economist at Zillow
“Trying to predict home price movements for nearly a decade would be little more than a shot in the dark,” says Nicole Bachaud, a senior economist at Zillow. “At least for the foreseeable future, house price growth is likely to be much closer to historical norms [between 3 and 5 percent per year] than the record pace we have seen over the past two years” .
"Even if inflation drops back to 2 percent, that could take a $1 million home to $1.17 million by 2030," says Leonard Steinberg, chief evangelist and corporate broker in New York City at Compass. "At 5 percent, it's $1.47 million."
Could we actually see a decline in home prices? Not likely.
"Home values stabilized this summer while buyers pulled back at current prices, but it's important not to confuse an inability to buy a home with a lack of desire to buy," says Bachaud. “Suppressed demand from potential buyers waiting in the wings for a home they can afford will provide a support for prices preventing them from falling anywhere near pre-pandemic levels, so the price declines we see today will likely be minimal and short-lived. . -lived in place of a significant increase in housing stock.”
Still, buyers could gain a little more bargaining power, including the ability to enter below the asking price in some markets and negotiate concessions.
How Much Home Can I Afford?
"I'm not so sure buyers feel like they're getting a good deal," though, says Daryl Fairweather, chief economist at Redfin. "With higher mortgage rates, the median mortgage payment is almost 40 percent higher than it was just a year ago."
Will we see any additional offer to solve the housing deficit? Perhaps, but that increase is not going to happen overnight.
"Homebuilders don't subscribe to the 'if you build it, they'll come' mentality," says Greg McBride, chief financial analyst at Bankrate. "They did it before [before the 2008 housing crash], and it didn't work out well."
In addition to builder concerns, other factors, such as zoning issues in certain cities and neighborhoods, present further obstacles in the way of addressing the lack of listings.
“The housing shortage is a problem that is not going to go away,” says McBride. "It's going to take a long time to fix."
One factor that can affect the type of home loan you might need is the Federal Housing Finance Agency's annual update to conforming loan limits. Each year, the agency sets a new maximum amount for mortgages purchased by Fannie Mae and Freddie Mac (most loans) based on home price growth.
In 2022, the FHFA significantly increased the limits to account for rising home values: $647,200 in most of the country, stretching to $970,800 in high-priced areas like California, Hawaii and New York City. If you need to borrow an amount that exceeds the limits of your area, you'll need to qualify for a jumbo loan, which often comes with more stringent down payment and credit requirements.
What about mortgage rates?
Whether you expect to buy a home in the next year or the next decade, the highest or lowest mortgage rates help determine how much you can afford. Rates have been rising so far in 2022 as the Federal Reserve works to rein in inflation. You may be looking at the rise from around 3 percent at the end of 2021 to current rates of more than 5 percent with serious concerns about where those rates will be in 2030.
"The future is very uncertain right now," says Fairweather. “We don't know when inflation will come down. We don't know if we are entering a recession. We don't know where we'll land on interest rates when the dust settles."
Looking at the bigger picture, however, Fairweather predicts a calmer, more profitable future.
“Give it a year or two, and mortgage rates should be lower,” says Fairweather. “They may not go back to 3 percent, but they should be lower than they are now,” adding that “mortgage rates are not set in stone. Buyers can shop for adjustable rate mortgages and can refinance in the future to lock in lower rates.”
Tips to save for a home in the next few years
1. Pay down your debt
Your down payment savings strategy isn't just about increasing the amount of money you put into your bank account. It's just as important to focus on lowering the amount of money you owe on other debts like credit cards, student loans, and car payments. By lowering your debt-to-income ratio (DTI), you'll be in a better position to qualify for a mortgage in the future.
2. Make aggressive career choices
If you're just getting established in your career, now is the time to build your earnings and savings for a future home purchase. Find out the right way to ask your employer for a raise, or be willing to look at other opportunities where you'll be rewarded with a bigger paycheck. Sixty percent of workers who changed jobs in the past year earned more money in their new roles, even accounting for the rapid pace of inflation, according to a recent Pew Research Center study. In years to come, a smart career change can make a big difference to your bank account.
“[Homebuyers] can improve their financial situation by leaps and bounds in that period of time,” says McBride. "They can buy a house for not much more than they would pay today, but their income could be 50 percent higher."
3. Focus on your local market, not the headlines
As you think about a home budget, it might be helpful to focus on housing market conditions in the neighborhood where you want to buy rather than broader national trends that might be skewed by data in another time zone. Your down payment needs will be very different in Tuscaloosa than in Tucson, for example.
"Everyone should avoid averages and look at the details of their neighborhood," says Steinberg. “How many houses are being built? How many homes are there on the market and at what level of prices and conditions? Real estate markets are hyper-localized and generalities and averages are somewhat useless.”
4. Look for lower down payment loan options
While 20 percent is the ideal amount for a down payment to avoid paying more in interest and mortgage insurance, it's not a requirement of any kind, and it's not realistic for many to save that much money. Consider whether you'll qualify for a low down payment program, even if it comes with mortgage insurance.
"These are designed to help first-time buyers," says McBride. "While you have to pay mortgage insurance for a few years, the idea is to build up enough equity by the time you move into your second home that you don't have to pay private mortgage insurance."
5. Keep closing costs in mind
The down payment isn't the only piece of the home buying puzzle you'll need to figure out. You'll also need to be ready to pay closing costs: lender fees, taxes, appraisal fees, settlement charges, and more. These add up quickly. In 2021, average closing costs were $6,905, according to ClosingCorp.
Because you'll be spending several thousand in closing costs, it's imperative to stay in the house long enough to break even if you want to stay in the black.
“If you're buying a house and selling it a year or two later, you're not going to win,” says McBride. "Make sure you have a longer time horizon in mind."
6. Think about the cost of living and where you could put down roots.
Headlines about home prices may cause concern right now, but it's important to remember that high price markets play a big role in the data.
“Buyers can fight inflation on a personal level by moving to a more affordable place,” says Fairweather. “If they have the flexibility to work remotely, they could start exploring other cities and states on Redfin to see how a lower cost of living can affect their lifestyles.”