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Buying a Home in the Current Market

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Buying a home is one of the most exciting and notable events in many people's lives. When conditions are right, buying a home can also be one of the best financial decisions you will ever make. However, inventory shortages and rising mortgage rates have made the market more and more competitive. The following tips will help you navigate the process and avoid making costly mistakes along the way.

How the Pandemic Has Affected the Housing Market

One key to buying a home in the current market is understanding just how the pandemic affected the housing market. First, the shutdown caused the housing market to come to a standstill. Then just as quickly, new home-buying trends emerged because of new and different buyers in the market. In addition, there were fewer homes on the market in 2020 than in 2019, creating a shortage of homes for sale.

In this new emerging housing market, buyers increased the demand for homes at a time when the inventory of homes on the market was already in short supply. This mixture of increased demand and decreased supply is what confronts buyers today in this extremely competitive market.

Here’s what you should understand as you search for a home in the current housing market.

Highly competitive market: A shortage of available homes and an increased number of buyers searching for homes combined to create enormous competition in the market. On the one hand, many people began working remotely and looking for homes in suburban and rural areas. On the other, a new group of millennial buyers was about to enter the home-buying market. In addition, people being priced out of rental properties also began searching for homes. As a result, home prices began to skyrocket, spurring bidding wars among prospective buyers.

Rising mortgage rates: At the onset of the pandemic, mortgage rates were at historic lows, which served as an incentive for homebuyers. However, as 2021 came to an end, mortgage rates began to rise. This upward trend has continued in 2023 and is expected to last potentially the rest of the year as the Federal Reserve is still trying to combat inflation. And thanks to inflation as well as continued supply shortages, you should also expect home values to remain stable, if not increase.

How Do You Navigate This Competitive Market?

Are you a first-time homebuyer? Does all of this sound daunting and overwhelming? Well, even if you are not a first-time homebuyer, it's important to understand that you are not just competing with the buyer next door. You're also competing with investors and all-cash offers.

So, what can you do when you're being priced out and find yourself in the middle of a bidding war? Here are a few recommended first steps to consider before jumping into this increasingly competitive housing market.

Learn about the mortgage loan process before you start applying. If you are in the market for a home, get a head start and learn how the mortgage process works. Talk to your credit union about the pre-approval process, mortgage rates, and closing costs. And before you start applying for a mortgage loan, ask for a pre-qualification. Once you're ready, gather your financial information to obtain a pre-approval.

Various experts predict further rate increases. If you've been keeping up with the news, you know that mortgage rates and sales prices have been going up. And this trend doesn't seem to be slowing down until maybe later in the year. The median home price rose $21,000 from January to April of this year.  However, external factors such as inflation, and the war in Ukraine, will continue to influence interest rates. As a result, interest rates will keep fluctuating, and predictions will vary, so monitoring these rates is essential.

Keep up to date with market trends at the time of your purchase. The housing markets are changing every day. A home can be listed on the market one day and then be sold in the blink of an eye. So watch where the market is going by keeping up to date with the news. Also, stay tuned with your realtor about market trends and keep in touch with your lender on mortgage interest rates so you can lock in your rate.

Although some experts anticipate that the housing market will return to normal levels later in the year, you can expect this new trend of home shortages, high home prices, and increasing mortgage rates to continue for now.

Steps to Buying a House in the Current Market

Should I wait to buy a home? That’s a question many people are asking themselves. The cost of waiting to buy a home might turn into a gamble since it's difficult to predict what will happen in the future.
Buying a house in today’s market isn’t an impossible goal to achieve. It simply takes some additional preparation to make the financial commitment. Here are four steps to start taking when you’re considering jumping into the home-buying market:

Step 1: Double-Check That You’re Ready For It

Buying a house is a financial and emotional commitment. Make sure you’re prepared on both fronts.
If you’re buying a home with a partner, have a conversation about your goals over the next several years. Plans like relocating for work or starting a family will make a big financial impact so make sure that when it comes to money, you’re both on the same page.

Having a good-sized down payment is important but there are other considerations. Owning a home also means that you’re responsible for repairs. That’s why you’ll want to have an emergency fund that can cover those unexpected expenses.

If you have debt, then consider whether it makes sense to pay it off before taking on mortgage payments. Paying off debt will increase your cash flow so those monthly house payments are more manageable.

Step 2: Calculate How Much You Can Afford

When you’re prepared to buy a home, the next step is to figure out what monthly payments you can afford. Use a mortgage loan calculator to help estimate what your monthly mortgage payments will look like. Use realistic numbers for what you expect your loan amount, the interest, the term, and the down payment to be.

It’s also worth sitting down and looking at your current cash flow. Look at the last six months of income and savings. Your potential new mortgage payment might be more than what you’re currently paying.

Consider if there are expenses you can cut out before making a home purchase. This is a good time to start using a budget to help manage your finances in a new home.

Another thing you’ll want to do is check your credit score. The interest rate on your mortgage loan is largely determined by your credit score. Having a high credit score could give you a lower rate so you’ll be paying less interest. If your credit score needs some work, holding off on buying a home and working on improving it could be worth the wait.

Step 3: Save for a Down Payment and Other Costs

Your down payment amount will impact your monthly mortgage payments. The more you can put down on a home, the lower your payments will be. A down payment of less than 20% of the home’s purchase price may require a monthly charge for mortgage insurance. Some types of home loans have lower minimums for a down payment.

Don’t forget about the other costs involved with buying a home. You will want to have enough to cover:
  • Closing costs: These include property taxes, insurance, and fees charged by your lender and title company. Closing costs vary by the area you’re buying in. Generally speaking, you’ll want to save around 3% of the home’s purchase price to cover closing costs.
  • Moving expenses: The cost to move into your new home will depend on how much stuff you’re moving, where your new home is from your current, and if you’ll rent a truck or hire a moving team. You can get an idea of how much to budget by calling several moving companies to get quotes.
  • Update costs - There might be home updates that you’ll want to make to your home. For example, you may want to repaint the bedrooms or install new flooring. You may also buy new furniture to furnish the home.
Step 4: Create a Home Wish List

Before you start looking for homes, write a list of what your house must include and what would be nice to have. Are you looking to buy a starter home or one that you want to live in for a long time?
Having a single-family home with a backyard is great if you are willing to keep up with all the maintenance or pay for someone else to do it for you. But a condo or townhouse might be a better option if you prefer to enjoy maintenance-free living.

Mortgage Loans in Today’s Market

The mortgage that you get will have a drastic effect on what you’ll need to qualify in this competitive market. The main types of mortgages are:
  • Conventional Loans: These mortgages aren’t backed by the federal government. The qualifications are more stringent but offer low minimum down payments.
  • Veterans loans: Backed by Veterans Affairs, these mortgages are for military members and offer no down payment or monthly mortgage insurance payments and other benefits.
  • FHA loans: Ideal for first-time homebuyers and backed by the Federal Housing Authority. These mortgages have low down payment options and lower credit score requirements.
For each of these types of loans, you can choose between a fixed-rate or adjustable-rate mortgage.

Power Financial Credit Union Is Here to Help

We know how intimidating a home purchase can be, especially in these uncertain times. That is why Power Financial Credit Union is here to help you along each stage of your home-buying journey. Our mortgage loan experts will answer all of your questions and help you find the right solution for your specific financial needs.

From a lender credit to cover your closing cost to the ability to borrow up to 97% of the home’s appraised value, we offer a number of favorable promotions to help make your dream of home ownership a reality.

To get started, visit our website to learn more about the different mortgage options and interest rates Power Financial Credit Union offers. You can also call us at 800.548.5465 to speak with one of our mortgage loan experts.