Figuring out whether it’s the right time to buy a home is never easy. There are many factors in play, including inventory levels, mortgage rates, and more. While some of the points you’d want to consider are playing in buyers’ favor, others are working against you. As a result, buying a home now may only make sense if you can pay cash. Here’s why.
Housing Inventory Shifts
Overall, housing inventory in many parts of the United States is trending upward. As a result, it’s shifting toward a buyer’s market, which works in your favor if you’re planning to make a purchase. Plus, rising interest rates are discouraging some people from entering the market as buyers. That means less competition for those who are deciding to move forward, which can help you get a house for less than you would have spent not that long ago.
However, that doesn’t mean you’re getting access to the best possible properties. Since interest rates were once historically low, some potential sellers are holding off on moving because they couldn’t get a similar rate on another property. As a result, inventory is a bit more constrained than it would be under more favorable conditions.
Mortgage Rates Are High
While housing inventory is increasing, and that can lead to lower prices, any savings currently is largely offset by increased mortgage rates. Even if you convince a seller to drop the price, the amount you’d pay in interest pushes your cost up far beyond what you may have spent when interest rates were lower, even if the prices remained high.
Additionally, higher interest rates limit your buying power. Lenders factor in the cost of interest when determining how much you can safely borrow. As a result, the total amount the lender is willing to let you finance is less today than it was just a little while ago, and that could limit your access to properties.
Why Buying with Cash Works
If you buy a house with cash, you can benefit from the increased inventory and lower home prices without the costs associated with higher interest rates. As a result, buying now could be beneficial, as there’s no guarantee that housing prices won’t increase in the future.
Additionally, since sellers who are listing today could be particularly motivated, mainly since they’re selling in a less-than-ideal market, presenting a cash offer may lead to bigger price reductions and streamlined deals. Essentially, cash is attractive when mortgage conditions are tighter, as the seller doesn’t have to worry about whether a lender will stop a sale from moving forward. Since that’s the case, you may even come out further ahead, allowing you to potentially capitalize on the current market.
Do you think the current mortgage rates mean that you should only buy a home now if you can pay cash? Why or why not? Share your thoughts in the comments below.
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Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is a former AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.
