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Should You Buy a House Now?


Christian talk radio with Rob West

May 11, 2022

With a red hot housing market and sky high home values, it’s not an easy decision to buy now. Today on MoneyWise, we’ll offer a few tips for those thinking about buying in this historic market. Let’s start out with a little good news for homebuyers. The real estate brokerage Redfin is reporting that sellers dropped their prices on 12% of properties in March. That’s compared to only 9% during that month in 2021. What does that mean? Even though home values may be easing just a bit, we’re still in a strong sellers’ market. In March, the median home listing price was just over $400, 000, up more than 13% from a year ago and nearly 27% higher than in March of 2020 according to Realtor. com. WHY ARE PRICES SO HIGH? It starts with the pandemic. It takes a lot of lumber to build a house, and the price of that commodity has risen dramatically due to COVID, adding thousands of dollars to the cost of home construction. According to the National Association of Home Builders, the price of all building materials has risen more than 20-percent since January of 2021, and almost 30-percent since January of 2020. In addition to the rising price of materials, the construction industry is reeling from a lack of workers. Training for skilled carpenters and other trades has fallen off dramatically during the pandemic. All of that making it more difficult and expensive to build a house. We’ve also had a mass migration of people out of cities and into suburban and even rural areas. That, too, is the result of the pandemic, as perhaps hundreds of thousands more people are now able to work remotely. Those folks began looking for less expensive places to live, and that’s created a huge demand for housing in areas that have traditionally been less populated. In its 2021 report, the government-sponsored mortgage agency Freddie Mac found that the nation had a shortage of nearly 4-million housing units. That’s produced an incredibly strong demand for houses. Another factor pushing prices higher is comparatively low interest rates. It’s true that the Fed has been raising rates, and the average 30-year fixed rate mortgage is now over 5-percent according to Bankrate. com. But comparatively speaking, they’re still very low. In 1982, the average 30-year fixed rate loan was above 18-percent! And over the last 50 years, the average rate has been nearly 8-percent, well above today’s rates. All of which is to say that the recent mortgage rate hikes have done little to curb the demand for houses. So by now you’re probably wondering when will it end? As we’ve seen many times in the past, bubbles always burst. The problem is, this isn’t a housing bubble like we had before the crash in 2008. Back then we had lenders giving mortgages to people who were simply not qualified to repay them. We also had a surplus of housing units. So foreclosures were flooding a market that already had homes that couldn’t be sold. Demand vanished and prices fell through the floor. Today we have plenty of people with adequate incomes, but also a huge scarcity of housing units. So a lot of dollars are chasing after too few homes, keeping prices high. That said, it’s highly unlikely we’ll see anything like a crash or even a modest decrease in prices. Although prices are expected to moderate in time, analysts aren’t predicting they’ll actually fall. So should you buy a house in this crazy environment? Consumer expert Clark Howard recently asked a critical question that will help you think through this: How long do you plan on living there? If you feel confident that you’ll still be in the house 10 years from now, it may make sense to go ahead. In that time, the market will moderate and you’ll see a more normal appreciation. But if you’re a short term buyer, it’s probably not worth the price of admission into a red hot market. On today’s program, Rob also answers listener questions: ●Would it be wise to sell your home to pay off debt or just pay off debt over time? ●Does it make sense to use savings to pay off a home? ●Is it wise to use a home equity loan to pay off higher interest debt?

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