If you were to ask the typical home buyer what today’s housing market is like, they’d probably have some pretty choice words to describe it. After all, in addition to elevated home prices and limited inventory, home buyers today are grappling with expensive mortgages. So all told, it’s not a great combination.
In spite of that, recent data from TD Bank finds that 75% of first-time home buyers are optimistic about the current real estate market. If you’re wondering how that could be, here are some positive aspects to focus on.
1. Mortgage rates could fall this year
The average 30-year mortgage rate as of this writing is 7.22%, according to Freddie Mac. A big reason mortgage rates are so elevated these days is that the Federal Reserve’s string of interest rate hikes in 2022 and 2023 helped push them upward.
But the Fed is expected to cut interest rates this year as inflation continues to cool. Once that happens, mortgage rates are expected to follow suit.
This doesn’t mean that we’ll be seeing 5% mortgages by the end of the year. But could mortgage rates land in the mid-6% range come December? That’s possible. And by 2025, we could see even more favorable rates. If you’re unable to afford a home right now due to where interest rates are sitting, know that waiting six months to a year to buy could result in a lot of savings.
2. Down payment funds can earn more interest until they’re ready to be used
The upside of the Fed’s series of interest rate hikes is that savings accounts are paying generously right now. So if you have down payments funds sitting in the bank waiting to be used, you have a prime opportunity to earn more interest on them. That could give you more leeway to make an offer once you find the right home.
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Let’s say you have $50,000 to put toward a home. If your savings account is paying 4.25% interest, you could earn an extra $177 each month that cash remains in the bank. If you don’t end up buying a home for another six months, you’ll have more than $1,000 extra at your disposal in interest earnings by the time you’re ready to put in that offer.
3. Housing inventory is (slowly) picking up
The National Association of Realtors reports that in March, housing inventory rose 4.7% from February to 1.11 units. That represents a 3.2-month supply of homes.
For context, it generally takes at least a four-month supply of homes to meet buyer demand. And depending on the market, it can take six months’ worth of inventory to hit that goal.
But still, the fact that real estate inventory rose almost 5% in March from the previous month is a positive sign. If inventory continues to slowly but surely increase, first-time home buyers (and home buyers in general) will have more options to choose from. Also, more inventory means more negotiating power for buyers.
It’s easy to see why today’s first-time home buyers would have a negative attitude toward the housing market. But it’s great to see that so many are able to maintain a positive outlook. So if you’ve been struggling to find a home, know that there is a light at the end of the tunnel, and there are plenty of reasons to be hopeful.
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