You’ve been saving your money and building your credit. You are ready to buy a home. As inflation rates rise, questions about the housing market are important considerations. When you combine pandemic-related market issues with the challenges of getting supplies, it can be difficult to navigate the home buying process.

The good news is the new year brings with it the hope of forward movement in the housing market. It is a momentum that can benefit both buyers and sellers. If your goal is to buy a home, it is important to do your research and follow the housing market statistics closely.

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A Look at the Numbers Before You Navigate to Home Buying

If you want to understand the housing market, there are some key statistics you should monitor.

Available Home Units

The National Association of Realtors (NAR) reports that existing home sales continue to drop. As of December 2022, they were down by 1.5 percent.

This number measures how many single-family homes are currently available. The current sales are 4.02 million. That means there are that many homes currently on the market. Unfortunately, that is a number that has been steadily dropping in 2022.

2020 and 2021 saw a buying frenzy due to record-low interest rates. At the same time, homeowners became reluctant to list their homes thanks to the pandemic, leading to a drop in available units. The combination led to double-digit increases in home prices as the economics of supply and demand kicked in.

The slowdown started in February 2022 when buyers faced higher mortgage rates and housing prices. On top of that, the inventory began to drop as housing purchases closed.

According to one expert, the first quarter of 2023 is slower than the historical average. This is due to higher mortgage rates and a tighter inventory of houses available.

Average Selling Price

According to NAR, the median selling price for a home is $366,900. The median price for home sales has seen an increase of 416% from 1980 to 2020. In January 2022, there was a substantial growth spurt of 6.5 percent, pushing the average selling price to $350,300. Compare that to S303,600 in January 2021 and $366,900 by December 2022.

Time Looking for a Home to Buy

NAR states that buyers typically look for about ten weeks before they navigate to home purchasing. The average buyer will look at at least five units before committing to one. That number may increase when fewer homes are on the market.

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Over or Under the Asking Price

The strength of the market can help you determine whether you should bid more or less than the asking price. In a strong market, buyers are more anxious to sell so you can dip below their price. The average is 1 to 3 percent below the asking price in a bidding war. RedFin reports that the average home sold at 1% below the asking price in June of 2022.

A weak housing market means there are more buyers than sellers. In that case, you may have to go over the asking price to beat out the competition looking to navigate to home buying. The final sales price in a seller’s market tends to be at least 10% above the asking price.

Current Interest Rate

Current interest rates can be the determining factor for some looking to navigate to home buying. Several factors, including your location and credit score, influence the rate. The current national average is 6.36%, according to Bankrate. This is for a 30-year fixed loan.

You can also influence the rate based on the type of loan you get. For example:

10-year fixed rate national average is 5.72%
15-year fixed rate national average is 5.63%
20-year fixed rate national average is 6.41%

Notice that if you choose a shorter duration for the loan, the interest rate drops, which means you will have to negotiate your loan at the end of the term or pay off the home faster.

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What Is Likely to Happen in the Future?

It is no small task to predict the trends in the housing market, especially in a somewhat unstable economy. However, there is some evidence that home sales will remain sluggish for the first part of 2023 and increase towards the second half of the year.

Several factors can influence this trend, including:

Mortgage rates
Housing supply
Economic forecast

If the inflation continues to drop, more homebuyers may start looking again. However, the market will likely stay sluggish if the Federal Reserve continues to bump the interest rate up.

Consumer confidence in the economy can significantly affect the housing market as well. Strong confidence will encourage both buying and selling. That may keep housing prices from rising further and put more houses on the market.

How much house pricing will shift depends on who you ask. Some experts suggest they will drop by 4%, while others see them going up by at least 5%. That is just another indication of the uncertainty of the economy right now.

Mortgage Rates

Mortgage rates have been dropping over the last few months. Experts at Money suggest that the trend will likely continue. They may stay high during the first few months of 2023 but stabilize toward the middle of the year. They expect a 30-year fixed mortgage rate to be around 5.5% by the end of 2023.

Inventory

One of the biggest factors affecting the market is inventory, which will likely remain tight throughout 2023. There are hopes of an increase going into 2024, though. NAR reports the market has what amounts to a 3.3-month supply of houses right now. There may be a slight increase by the end of 2023, mainly because fewer houses will sell as consumers take time to regain their confidence in the economy.

Understanding Interest Rates

You’ll see a common theme in any discussion about housing marketing – interest rates. They fluctuate based on the type of mortgage loan you get. There are two common types: Fixed and ARM. It is essential to know the difference as you navigate to home buying.

Fixed vs. ARM

The primary difference between these two loan types is the interest rate.

ARM

ARM stands for adjustable rate mortgages. For example, if you buy a house and get a 30-year ARM mortgage, you pay the loan back over the next 30 years and have a fixed interest rate for a set amount of time. When that fixed-rate period expires, though, the interest can fluctuate.

The introductory rate of an ARM is typically lower than the rates you see on other mortgages, but it will change at some point. When it does, the interest rate will go up and down based on an index such as the London Interbank Offered Rate. The introductory period typically ranges from seven to ten years.

The fixed interest rate will last for five years if you see the mortgage listed as a 5/1 loan. The one refers to how often the rate can change. In this case, the one indicates it can change once a year. In other words, the lender evaluates the interest rate yearly and adjusts it based on the index. If it were a 5/6 loan, the rate change would be every six months.

ARM loans can have caps, too. They are:

Initial cap – The amount the interest rate can rise or fall within a set period.
Periodic cap – Limits the interest rate change from one adjustment period to the next.
Lifetime cap – The number of times the interest rate can change in the life of the loan.

The lender will present the caps as three numbers separated by slashes. So, an ARM loan with a 2/1/5 cap structure allows for a 2% drop or rise in the interest rate during the initial adjustment period and then up to 1% with every periodic adjustment. The rate can only change five times during the life of the loan.

Because ARM loans fit the current market, lenders can be more lenient with the interest rate at the beginning of the loan.

Fixed

Fixed-rate mortgages tend to have higher interest rates, but it sticks. This is because you carry the same interest rate throughout the length of the loan. So, if you get a 30-year fixed-interest rate loan for the next 30 years, you will have that same interest rate.

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Qualifying for the Mortgage Loan

Some buyers may find it easier to qualify for an ARM loan initially, especially if they have a lot of debt. This is because the ARM structure gives the lender some breathing room if they need to increase the interest rate later. However, the fixed loan is just that – fixed. There is no room for changes, so they are more difficult.

What Is a Rate Lock?

A rate lock allows you to lock in your interest rate as you navigate to home buying. So the interest rate won’t change from the time you make an offer on a home and the closing. The interest rate will fluctuate based on the market without the rate lock. You can lock the rate for 30, 45, or 60 days while you complete the buying process.

The downside to a rate lock is it will cost you if you don’t get everything completed by the end of the lock. Rate locks only apply if nothing changes about your circumstances. For example, the interest rate will change if you change your loan agreement, even if you have a rate lock. The appraisal of the home also causes the interest rate to change. They will reevaluate your credit before you sign the contracts. If there is a change, that may affect the terms of your loan.

Also, rate locks are not free. However, they are part of your loan agreement. So, you won’t necessarily see a charge unless you need to extend the lock. That may lead to a separate charge on the loan.

What Is a Physician Loan?

A physician or doctor loan is a mortgage option created for medical professionals. It typically means you can get the loan without a down payment. The idea is based on the theory that doctors just entering the medical field are at a disadvantage because they have a larger-than-normal debt due to the extensive education required to work in the field. They also may be unable to provide proof of employment because their work is part of their training. Their chosen profession indicates they will make more money in the future and are less likely to default on their loan.

Things Lenders Consider for Mortgage Loans and Interest Rates

Several factors go into your ability to get a mortgage and the interest rate assigned once you do. You want to consider these things before you decide to buy a house. They can significantly affect your payments and the interest you pay.

Significant factors that affect your mortgage and interest include:

Credit Score – This is more relaxed with some loans like FHA.
Debit-to-Income (DTI) Ratio – This is how much debt you have compared to your income. The formula is debt/income. So, someone who pays $1,500 a month for housing, care, and other loans and makes $5,000 a month has a debt-to-income ratio of 30%. DTI includes your estimated mortgage payment. Most lenders cap the DTI at 41%, so getting a loan cannot be higher. If it is, you may have to look at a lower mortgage, so a less expensive home.
Down payment – The magic number for a down payment is 20% of the cost of the home. You may get a mortgage with less or pay more to reduce costs.
Work history – Lenders require proof of employment or income
Condition of the home – They want to ensure it is worth what you pay. That will include a professional appraisal.

Lenders have their own criteria and may give more or less weight to each factor. They may also be willing to give one factor less importance for a higher interest rate. So you should shop around as you navigate to home buying to get the best deal.

When Is the Right Time to Navigate to Home Buying?

Timing is everything when it comes to buying a home. You’ll want to consider some critical factors before making this choice:

Family size – If you are considering expanding your family, is your current home big enough? Is the home you want to buy large enough for future family growth?
Stability – Are you planning on sticking around your current location? Do you have a job that might require moving at some point? A physician is a good example because you may move to get more training or for a better job.
Does buying a home fit into your long-term goals? – Do you plan to go back to school? If so, buying right now might interfere with that goal. What about other critical things you need, like life insurance? You might want to cover that first.
Can you afford a home right now? – Take a look at your budget and see if buying will help or hinder it?

Physicians have some extra considerations. For example, where are you in your career right now? If you are just starting your residency, you will be paying your student loans back even though you will make less money. Also, if you are single, is it worth buying a home when you will be working such long hours?

Get the Help You Need

If you are struggling at any stage of the home-buying process, let a professional step in and help. You can meet with a professional realtor at no cost, see your options, and then make your choice. Professional advice can help you navigate to a home at just the right time.

Physicians Thrive can connect you to a network of professionals to get the help you need at all stages of your career and life. We will also provide information on other things you should consider, like protecting your salary with disability insurance so you can pay that mortgage if you can no longer work, or life insurance should the unthinkable happen. Contact Physicians Thrive today.

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