High inflation often translates to high anxiety, which is why many Americans are striving to lock in the cost of one of their most basic, most human needs: a home.
But with housing prices already at lofty levels and mortgage rates spiraling, many buyers may be tempted to jump in before they’re ready — or because they fear the situation will only get worse.
“There is this psychological pressure of everything being uncertain,” said Simon Blanchard, an associate professor at Georgetown University’s McDonough School of Business who studies consumers’ financial decision-making. That can make a necessity like housing feel concrete, he said.
“It might sound comforting to focus on the present and lock in this part of the budget,” he said. “The danger is you might be creating vulnerability by leaving insufficient flexibility for later.”
The national median price of existing homes was $375,300 in March, up 15 percent from $326,300 a year earlier, according to the National Association of Realtors. Rates on 30-year fixed mortgages were 5.10 percent for the week that ended Thursday, up from 2.98 percent a year ago, according to Freddie Mac.
That has seriously eroded how much would-be buyers can afford: With a down payment of 10 percent on the median home, the typical monthly mortgage payment is now $1,834, up 49 percent from $1,235 a year ago, taking both higher prices and rates into account. And that doesn’t include other nonnegotiables, like property taxes, homeowner’s insurance and mortgage insurance, which is often required on down payments of less than 20 percent.
With inflation at a 40-year high and the cost of just about everything rising, it’s easy to get caught up in the irrationality that has some buyers aggressively bidding up prices and skipping basic precautions, like a home inspection.
“There is a scarcity mind-set right now,” said Jake Northrup, a financial planner for young families in Bristol, R.I. He said he and his wife had decided to wait a year and save more before buying a home of their own.
Some prospective buyers are doing the same — mortgage applications have slowed lately — but the market remains deeply competitive because of the country’s chronically low supply of homes. That can lead to erroneous assumptions and bad judgment.
So before you hit the open-house circuit, it’s time to assess not just what you can spend but what you should spend — and the potential costs down the …….
Source: https://www.nytimes.com/2022/05/01/your-money/home-buying-mortgage-rates-real-estate.html