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Not surprisingly, among millennials who intended to buy a home this year, 92% in a recent survey said they inflation affected their purpose.
However, most of them do not allow it to serve as a roadblock, according to the words survey by Real Estate Witchan educational platform owned by real estate data processing company Clever.
While 28% of these millennials are putting off their purchase plans, the rest say they’re responding by putting more money aside for a purchase (59%), spending more than expected (36%), buying a fixer-upper (26%) and buying a smaller home (25%).
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Millennials – who are roughly 27 to 42 years old – are in their prime home buying years. The typical first-time home buyer was 36 years old in 2022, up from 33 in 2021, according to the National Association of Realtors.
Last year, first-time home buyers made up 26% of all home purchases, up from 34% in 2021. The combination of double-digit year-over-year price increases for most of 2022 and rising mortgage rates has created an affordability problem for many buyers.
However, the situation is gradually improving as housing prices continue to decline. The median price of an existing home was $366,900 in December, up just 2.3% from a year earlier, down from $370,700 in November, according to the Realtors Association. Last June, the median price was $416,000, up 13.4% from June 2021.
In addition, interest rates on mortgage loans decreased. As of Jan. 24, the average 30-year fixed-rate loan is 6.21%, according to Mortgage News Daily. This compares with 7.32% at the end of October. As buyers know, the higher the rate, the higher their monthly payment.
While it’s impossible to predict what rates will be next year, experts say buyers shouldn’t wait for mortgage rates to fall to 2020 and 2021 levels — below 3% or not much higher — because that’s unlikely to happen again anytime soon. time
Rates were so low because of the emergency measures taken by the Federal Reserve to support the economy after the pandemic hit the US in 2020.
“These were unusual circumstances,” said Lawrence Yoon, chief economist for the National Association of Realtors.
“Buyers need to understand that the new norm is 5% or 6%,” Yoon said.
One headwind that buyers may face is the limited selection.
As of last month, there was a 2.9 month supply of homes — meaning at current sales rates, that’s how long it would take to sell all listed homes if no more came on the market. That’s down from 3.3 months in November, but up from 1.7 months in December 2021. A balanced market involves supply four or five monthsaccording to Redfin.
“There’s not a lot of inventory in the market,” Yoon said.
“Even with the slowdown in housing growth, days on the market are less than a month,” he said. “That means people who want to buy find the listing they want and snap it up quickly.”
If you’re hoping to find a seller who’s likely to lower the price, one strategy is to look for homes that have been on the market longer.
“There’s usually a lot of competition for new listings,” he said. “If you can find a home that’s been on the market for at least a month or two, it’s a great opportunity … sometimes sellers will charge 10% to 15% of the list price.”
Also, keep in mind that sellers were less likely back then to follow the contract with contingencies — meaning that the final sale depends on, say, a home inspection — that dynamic has largely changed.
“No appraisals and no inspections really went hand-in-hand with low interest rates,” said Stephen Rinaldi, president and founder of the Rinaldi Group, a mortgage broker based near Philadelphia.
“With the exception of premium regions, in most cases, sellers fall back on contingency,” Rinaldi said.
Also, if you’re looking for homes near the city, it might be worth expanding your search radius, Yoon said.
“There are always more affordable homes further away,” he said. “And those homes tend to stay on the market for a longer period of time.”
This may also be worth considering adjustable rate mortgage if you’re trying to keep the cost down, Yoon said.
With an ARM, the appeal is the lower initial rate compared to a traditional fixed rate mortgage. This rate is fixed for a certain period of time – say seven years – and then it goes up, down or stays the same depending on where interest rates are at that time.
“Typically, a first home is not owned for a long period of time, usually five, seven or 10 years,” Yoon said. “So with that in mind, an ARM might make more sense because it offers a lower rate, and by the time it’s set up, it’s time to sell the house.”
While the rate can vary, there is a limit, experts recommend making sure you can afford the maximum rate if you come across it down the line.
You may be able to find an ARM with an initial rate at least a percentage point below fixed rates, Rinaldi said.
“I think it should be evaluated depending on the individual’s situation,” he said.