Recession Fears Have Me Questioning: Is It the Right Time to Buy a House
What I’m hearing around town is that home mortgage interest rates are on the rise. The stock market might not be holding up as well as usual with fears of an impending recession in 2023. And inflation continues to be on the local news channels every night. With all of this flux, it’s no surprise that many are asking ‘is now the right time to buy a home?
It’s an understandable question. For most of us, buying a home is the single largest investment we’ll ever make. It’s the sort of decision that affects your life for years to come.
Just to be abundantly clear, sometimes I say house. That might be a condo. Or attached dwelling such as a townhouse. I’ve had clients who made their first real estate purchase be an investment property. Point is, it doesn’t necessarily have to be a house. But I think regardless of what you are looking for, it comes down to the question. Where to start if you are considering a home purchase in 2023.
The Most Important Factors to Consider when Buying a Home In 2023
Financing Your New Boulder Home
With a potential recession looming later this year, there are a bunch of things worth considering before taking the plunge into Boulder homeownership. Top of that list has to be your own financial situation. Assess your income, debts, credit score and savings accounts.
Sounds easy enough, but really a good way to work through this step is to start the home buying process with a mortgage lender. Their job is to look at all your info and help you determine if now is the time to buy a home for you. Or if there are actions you should take to improve your credit, reduce your debts or whatever to best prepare.
These days, a good lender can have you fill out an online application, quickly getting you qualified or identifying debt obligations to eliminate or simply crafting a plan to show your personal income in the best light possible to get you approved. Key here is having a good mortgage advisor to start. I can help you with that!
There are numerous options out there to finance your home. Everything from a thousand bucks down with CHFA to hard money loans. Most common are conventional and FHA financing programs. These sorts of loans, even during a downturn only require 3 1/1 percent to 20 percent down.
Tax Advantage If It Is Time to Buy a House
Don’t forget, there is a tax advantage for homeowners. You get to write your mortgage interest payments off. There can be some limitations, so discuss this item with your CPA or accountant.
Once you have your new loan on your dream home, it doesn’t matter what the unemployment rate is or where the average interest rate is at. You get your tax advantage. This alone can make a big difference for today’s home buyer’s. Owning a home is a big investment and the equity you gain over time is priceless.
Determining Your New Loan Downpayment and Terms
Getting a mortgage professional involved early will also help you determine the type of loan you want to utilize. For instance, you might take a shorter-term loan to afford more house because now is the time to buy a home that’s going to last a lifetime.
Or, your individual comfort level might dictate a longer-term loan. Less home to start, but greater comfort knowing the payment will never change. Peace of mind. It goes a really long ways for some first-time home buyers.
Believe it or not, a lot of first time home purchases last three to five years. So getting a Seven One ARM might make great sense for today’s Colorado home buyers.
The way it works, for 7 years your rate is fixed, then it can increase. You can refinance anytime if mortgage rates decline. A national recession might cause rates to come down. Or you might find yourself selling and making a move. Why a move?
Your family size could get bigger (or smaller), your company could ask you to move, your pay might increase and your home goals adjust. There are lots of reasons not to fear an Adjustable Rate mortgage, even with other indicators of an economic downturn out there.
When Buying Your House, You Need Banked Reserve Funds
Sometimes, things come up for new homeowners.
Case in point, our furnace just went out. Over Christmas and New Year’s. I’m not kidding when I say it got pretty cold in our house over the holidays this year. Fortunately for us, our home has dual heating zones, so the upstairs furnace was running just fine.
And we added a couple of space heaters for the main level. All the while trying to sort out the furnace issue. The culprit at the heart of our HVAC failure? It was an inducer. This darn part took four appointments to diagnose, get ordered and shipped to Colorado and finally installed correctly. It was a bit of an endeavor. And one we didn’t foresee because our home is relatively new. So the furnace should not have broken down, but it did.
Bottom line: bank some reserves!
When It’s Time To Buy A Home Bank Some Money For Whatever Comes Up
Mom and Dad always told me, “Keep some extra funds in the bank for an emergency. Losing that furnace was the definition of an emergency. Having the money for space heaters and the repair of the furnace was key.
Questions to ask yourself,
- Do you have enough money saved up for an emergency fund should something unexpected happen?
- Are you able to comfortably afford monthly mortgage payments should interest rates rise? (If for instance, say you are on an adjustable-rate mortgage)
- In the event of a change of employment, can you weather a few months without needing to move into your parent’s basement?
If not, this may not be the best time to make such a large investment. Then again, I think I could figure out something to keep from moving into my mom’s basement no matter what. LOL.
The smart decision is to consider, what happens if there is negative economic growth? Do I see that happening? Not really. Google is expanding their campus and big-name companies continue to roll into Boulder. But it’s a question worth asking. And as a responsible Realtor one I’m bringing to your attention.
Doing a little economic research is a smart move. Consider a trip to the local Chamber of Commerce. You’ll discover a great deal of information about a community.
Timing Your First Boulder Home Purchase
Another factor to consider is timing. If you plan on staying in your new home for several years, then current economic conditions may not mean too much in the long run. Over the course of my 25-plus year’s career in real estate, I’ve seen housing markets bust, boom, stabilize. If there is one constant, it is that the real estate business market is always changing.
It might not be the time to buy a home if your career dictates you relocate to another part of the country in the next two to three years. If that’s the case, renting might be a smarter move allowing your greater career flexibility.
But you want to balance this locally. The Colorado Front Range is a hot part of the country. We still have an influx of people moving to Colorado every single day. And especially right around this area. So keep an eye out for housing trends.
Take into account how much demand there is in your area compared with how much inventory is available and whether prices are rising or falling quickly or slowly over time.
Vast Majority of Home Buyers Influenced by Increasing Home Mortgage Rates
We just witnessed severe rate hikes. A year ago, home mortgage rates were in the three’s and four’s range. Not so today. This has everyone talking.
Creates a big word of mouth deal, especially for First Time Home Buyers. How do we overcome this rampant herd mentality out there of it’s a bad time to buy a home?
That is to say, there is a lot of conversation these days about consumer confidence. It’s in the newspapers (do people still read those?), on the internet, making the headlines on the national news channels. This is a real part of buying a home. Similarly, once under contract, many folks experience Buyer’s Remorse. That’s a known part of the process when it is time to buy a home.
But for the moment, keep in mind that you are probably hearing on the radio, doom and gloom about the economy later this year. Or that our country is likely headed for a recession.
Do Not Allow Economic Recession Talk to Scare You Off
Turn on Cable News and you’ll see that nationally home sales are down several consecutive quarters now. Or check the price of bitcoin or your 401K and you might see that you don’t have quite what you thought in your bank account.
These things add up. It makes it difficult to pull the trigger and jump into the housing market.
Don’t let others’ perceptions impact your decision-making process. Remember, you are buying the house, not the rate. Home mortgage interest rates are likely to come back down. When they do everyone is apt to suddenly want a house again. That sort of following the herd stuff creates the market we saw in 2019-21 when homes were routinely selling for six figures over asking price.
IMHO, this momentary bump in mortgage rates creates an opportunity for you. It reduces the competition. You can likely purchase that dream home for merely full price. Or possibly get the seller to make concessions. One popular concession these days is a Seller Two-One Buy Down. There is a missed opportunity cost for Millennials not buying their first home because the Federal Reserve raised rates.
Things like fluctuating oil prices and negative GDP growth make the news, but don’t really have an impact on the fact that this is a popular place to live. With a great lifestyle and plenty of jobs. Sure, the news is lousy. There’s an easy fix, turn of the news and get outdoors and enjoy Colorado!
Boulder Real Estate News
For communities along the Highway 36 corridor, the answer is generally home values are increasing. Demand is soaring. I just published a post reviewing Boulder sales statistics. What I saw there is that Boulder condos jumped nearly 14% (13.8 to be exact) year over year from December 2021 to the same month in 2023.
So even if there were to be an economic recession in the United States later this year, I think Boulder condo prices are going to hold up over the longer term. It remains the most affordable option to buying into our housing market.
Looking back at the last several years of Boulder real estate sales data, you can see consecutive quarters of home value increases. Consistently.
Count The Cranes in Downtown Denver
Sounds silly I’m sure, but next time you drive down I-25, count all the cranes in downtown. Denver continues to boom in commercial real estate. This is a major indicator of the area’s continued strength in residential real estate.
If your desire is to be in the Boulder-Denver corridor, waiting could make some future time to Buy a home even more expensive or completely out of reach.
Additional Factors to Consider When It’s Time to Buy a Home
Keep in mind owning a home is about more than just a financial decision. It is also important to your sense of community. Your home will give you a place to invest in what’s most important to you. Maybe that’s a yard so you can get the pet you’ve always wanted. Or an unfinished basement to put your personal home remodeling skills to the test.
Or it might be that stable space you need for a multi-generational family space. Or simply to start your own family.
Additional Resources for Today’s Home Buying Consumers
Paul Sian with the Blog CinCinKyRealEstate delves into the implications of a recession as it relates to, “housing prices, rental rates and the availability of loans.” Great article by a fellow blogger and worth a look. Paul makes an early observation.
Recessions can lead to more affordable housing. It’s true. When the Great Recession hit Colorado home prices did come down. Some. But job losses, negative GDP growth and fear during that time frame made it really difficult for consumers to take advantage of the market.
I mentioned Buyer’s Remorse in my post. It brings up the question, why do real estate transactions fail? Truth is contracts come undone for a variety of reasons all the time. Writing her blog out of Wellington Florida, fellow real estate pro Michelle Gibson provides a sharp essay discussing “Back on the Market.
Related to this, and important for Colorado home buyers to understand, is that your contract does allow you to terminate and receive your earnest money back under a number of conditions. Most notably, the home buying inspection phase. Just worth mentioning.
The Housing Market in 2023: Is it a Buyer’s or Seller’s Market?
This is really something to consider when considering your home buying decision. There are advantages to both cases. If a Buyer’s market, you are apt to get better terms on an offer. You might be able to receive a discount on the purchase price or seller concessions.
It’s also unlikely that you’ll be paying tremendously over list price. In a Buyer’s Market there are generally not multiple offers and all the craziness that goes along with that.
Still some segments of our housing market remain a Seller’s market. Take Boulder County for instance. It is definitely a Seller’s market still at this point. Will you run into multiple offers? Maybe not. You could even get some discounts. Buying a home you love, in the face of economic uncertainty, during a Seller’s market is a great opportunity to turn around and rapidly flip your house for a profit even. So, something to consider.
Economic Research is only Part of Time to Buy a Home Decision Process
Uncertain economic times can add to the stress of making a home buying decision. But it shouldn’t make it an impossible choice for today’s consumer.
It just requires a little extra caution and preparation by savvy home buyers. Especially our Millennials and First-Time home buyers out there.
And as your Realtor it means I’ll be taking the extra time to explain exactly what you’re getting into before signing any sort of contract or mortgage agreement. I think the most important thing is to give Boulder home buyers the information they need to make informed decisions. Weigh the pros and cons of their financial situation. Understanding the local nuances of the housing market. With this information, today’s home buyers can make informed decisions on the road to home ownership.
Denver home buyers should be able to make an informed decision about whether or not now really is the right time for them to buy a home of their own. Good luck!