Is it right time to buy home?

 

I am writing this blog post on Oct 1st, 2023. We all know, the pandemic effect on housing market. Many people saw surprising appreciation for their homes and those who entered market around 2021 were the most lucky since it didn't matter if you bought in 2018 or 2021, home prices went up so high after 2021.

Is it right time to buy a home right now? say in Frisco or any other Dallas-Fort Worth metroplex?  or any place in USA.

There are multiple variables affecting the real estate markets.

The Variables

Inflation and Interest rates

As the government pumped in loads of money into the system and at the same time reduced interest rates to 0%,  home sales were to high and it all seller market.  Come to 2023,  too much of money and global situations made inflation so high that Fed has to increase the interest rates, while some are hoping that interest rates are going to go down, we do know know how the future will be with respect to inflation and interest rates.   

30 years fixed interest rate which was around 2.75% is now more than 7%, if a mortgage loan is for half million additional payment.  Monthly payment is around $1400 additional.  

Loan amount	Interest rate	Monthly payment	Total interest
500,000	2.75	2041	234,834
500,000	7.25	3411	722,046

Interest rates have suddenly decreased the affordability for so many. If you are not making at least a $100,000 annually,  It is very hard to buy a home.

Please note, I didn't factor in the insurance and property taxes, HOA expenses, they are additional.  Property taxes went up so much this year as last year prices were high and now tax assessments are on higher base prices.\

Job market

Companies are laying off people,  salary reductions may be coming as well. The remote work seems to disappear slowly and most companies have adopted hybrid model already and are enforcing it.  There is lot of uncertainty at this moment about Job market.  If you have a stable job, please stick with it. Surviving the current situation is important.

Bank Balance & Down payment

When it was low interest rate, it even 5% down payment was OK, as overall monthly commitment is less, now,  lenders are looking for more down payment to get you a preferred rate. a 20% down payment is most preferred.

Credit score and DTI

With increase in inflation, if you are using credit card too much that dropped credit score, you will have difficulty in 2 ways. 

1. Drop in credit score. 
2. DTI (Debt to Income Ratio = (Total  monthly expenses / Total income)*100), lenders would like to see you are comfortable to pay your mortgage, if your gross liabilities are below 43% (including your new mortgage), it will be ok, the less your DTI ratio the better you are! as you are more likely continue paying your mortgage every month without defaulting.

Should you buy home now? (October 2023)

You can check any real estate website that price drops are now a common thing.  I feel buying home now is like catching a falling knife, it does hurt. Interest rates may not go too far from where it is now,  builders will give offers for quick move ins, wait for the year end and you could get better deals.