Spring is a popular time for homebuying and selling, but you may be wondering if you should sit this season out. After all, inventory is dropping, mortgage interest rates are rising and the recent tax cut has negatively impacted some of the housing market. On the other hand, if you’re concerned that interest rates and sale prices will go even higher, you might decide that now is the perfect time to buy a house.
If you are trying to determine if you should buy or sell a house this season, there are several factors you should consider. Here’s what to expect this spring.
An imbalanced supply and demand. In past years, you could afford to take time gathering your paperwork. You could leave a room unpainted when putting a house on the market, and you could lowball an offer and realistically hope that the seller would take it anyway.
But with the rising demand, this is no longer the case. It’s such a competitive market that it can be difficult for buyers to make their offers stand out. That means that ideally you’ll offer a significant down payment.
Don’t fret if you don’t have enough for a large down payment, however. Most first-time homebuyers don’t [have enough] But if you can, you’ll be ahead of where many of your peers are.
Changes from new tax law. The biggest implication of the new tax law is the change in deductible mortgage interest. Previously a homeowner could deduct the interest on a mortgage up to $1 million. That amount has been reduced to $750,000.
As for the tax change itself, This may seem like not much of difference for many homeowners, but in competitive urban markets, like D.C., San Francisco, New York [and] Boston, a starter home is almost always over $750,000.
In other words, if you’re buying a starter home in a big city, and you were counting on that deductible mortgage interest to make owning a home more affordable, you may want to reconsider purchasing a house right now.
Higher interest rates. If you are thinking about buying a house, and you need a reason to start looking, consider rising interest rates. After all, the Federal Reserve is expected to raise rates three more times in 2019.
There is no doubt that houses are becoming less affordable. Rising interest rates raises monthly costs for buyers, but it also means that buyers will qualify for less money and need larger down payments to secure their notes.
Another problem with interest rates is that the hikes hit buyers from both sides, making property purchases less affordable. When inventory is scarce, demand drives up prices, which creates an environment where home values are moving up independent of interest rates. Buyers should pull the trigger as soon as possible if they can find a home they like, as the Fed is scheduled to raise rates at least three more times before the end of the year, and 5 percent 30-year fixed notes are not far off. If possible, buyers should stretch now while money is still historically cheap.
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