While I am not an economist, as a Realtor, part of my job is to stay on top of understanding our economy and what interest rates are doing and how they are affecting our market.
We have been on a wild ride with interest rates historically low for the past couple of years, driving buyer demand and resulting in a shortage of homes on the market. Sellers have been basking in escalated sales prices, earning deep-pocket returns on their investments.
We have been at historically low rates for so long now that it’s easy to think it’s the norm and will last. This is especially true for first-time home buyers. Many buyers want to hope that they will come back down again, and as they wait, interest rates may creep back up to the 6% or 7% range before the fall again.
Because of these factors and more, some would-be buyers still believe the current market is a bubble, and that home prices “won’t stay this high.” (Read my recent InsideNoVa article, “Boom or Bubble” here). While unlikely, it’s certainly tempting to hope that interest rates will “come down again” and that “home prices will come back to ‘normal.’”
On May 4, the Fed announced another rate increase — the highest single increase in the past two decades. This disappointed a lot of buyers who witnessed their purchasing power decrease, all while properties in Northern Virginia are still experiencing strong demand, so prices are not dropping.
In this market, we have to be conscious to distinguish between national statistics and local happenings. Northern Virginia will continue to experience business development and growth over the next decade. Yes, inflation is rising, as are interest rates, and although it may soften the market, it isn’t going to make buying houses any less expensive any time soon, in my opinion.
I believe NOVA should expect the market to become a little more balanced. I do not expect a “buyers’ market” any time soon, however. Here are a few factors driving that view:
- New builds are still way down. We have a shortage of 5 million homes in the United States, and demand still outstrips supply in NOVA.
- Supply chain woes and labor shortages. Building new homes is taking longer.
- More subtle, but putting a constraint on supply is that many current homeowners have little incentive to move. Getting a new mortgage at a higher rate is not motivating, and the same supply constraints impact them.
Sellers will likely remain in the power position for quite some time. What will happen with interest rates? Good question – I don’t think even the experts know.
In reality, trying to time the market is very difficult. Wishing for factors to change in your favor may leave you delayed in owning your home for far longer than anticipated, or at a higher cost than anticipated.
After 10 years in this industry, my advice is to buy when you need or truly want to move, and buy a home that you can afford. What you can afford is determined by a combination of these factors:
- Your down payment
- Sale price of the home
- Interest rate you can secure
- Monthly payment you can afford and feel comfortable with
Lenders often surprise borrowers as to how much they can borrow. It is often more than they expect. But is that the same as what they can afford? I always recommend that my buyers determine a few factors on their own, including: how much disposable income you need and like to have each month, and what does your monthly mortgage payment need to be in order for you to live comfortably? Don’t be persuaded by what you “can” do in lender’s terms and take on more than you “want” to do and can feel good about.
Buyers truly need to understand their needs. Your next house doesn’t have to be your forever home but may be a step in that journey. So, consider buying a little smaller now if it’s a neighborhood you love. Buy a house that needs some work. Invest in the house so you can get a little or low return on your investment, then move somewhere down the road into your next home. It’s a lot more common these days to own more than one or two homes in a lifetime. Hey, I’m on number nine!
Rebecca McCullough is a licensed real estate agent in Virginia with McEnearney Associates, Inc. in Old Town Alexandria, VA. If you would like more information on selling or buying in today’s complex market, contact Rebecca at 571-384-0941 or visit her website RebeccaMcCullough.com.
If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: InsideNoVa@mcenearney.com or call 703.549.9292.
McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. www.McEnearney.com Equal Housing Opportunity. #WeAreMcEnearney