Should I buy a house now?” I hear this all the time… In a casual conversation with people who know I am a Realtor, it ultimately comes up in conversation (or its counterpart, “Should I sell my house now?”)

My answer to that is data-driven, period.

If you look at the data, you know the answer. However, since most people aren’t as deep into the housing market as Realtors and Lenders are, let me share some knowledge that will help answer that question.

should I buy

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mortgage rates

Should I Buy A House Now?

Right now, buyers have an opportunity they may not have next year.

Mortgage rates are still low, historically speaking. The Pandemic rates were artificially low (with government quantitative easing or QE) and have never dropped that low before in history – not even during the housing bust when they implemented quantitative easing 3 times. If you’re waiting for those rates to come back, it will likely be a very long time, if ever.

Since 1971, the average mortgage rate is 7.75%. Today, we are still below that.

Look at the graph on the left from the Federal Reserve Economic Data (FRED.) You can visually see the mortgage rates from the last 52 years. The red line indicates where we are today. Looking back to the left side of the graph, you can see we are still low in comparison.

In the Great Recession in 2007 to 2009, the Fed jumped in and started buying Mortgage Backed Securities and Treasuries. They ultimately “shorted” the supply with the same amount of buyers in the market. This caused bonds to go up and mortgage rates to go down. They did this 3 times during the 2nd worst economy (next to the Great Depression.) It’s the old supply and demand at work to stimulate the economy.

They did this again with the Pandemic economy where we saw rates in the high 2% range.

If you take away the government interference, rates today are still at all time lows when compared to the previous 52 years!

This proves that rates aren’t bad where they are today, but things are gonna change…

Federal Funds Rates and the Economy

The image to the right is the Federal Funds Effective Rate since mid 1954. See how the rates climb (in red) and then a recession hits and rates come down. It has happened every single time in our history since tracking.

Right now, the FED is raising rates to slow inflation and get it under control. However, they always overshoot and we end up with a recession – no matter how short.

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Fed Funds Rates

Now, look at all the gray shaded areas depicting recessions. We’ve had 10 since 1955.

More specifically, look at the relationship between the Fed Funds Rate actions, the Recessions and what happens immediately after. It isn’t an anomaly, it’s happened in every one of the 10 recessions.

The FED begins tightening the economy because it’s overinflating. They go too far and push us into recession and then rates drop.  See how it’s happened after every single recession in history since 1955?

That’s what’s coming for us. It will probably be a short-lived recession, but a recession nonetheless. The data doesn’t lie…

We are headed for a recession in 2023 and then rates will fall again – just NOT down to the high 2 percent range. Experts are forecasting in the 4.5% to 5% range. Still very low!!

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age when buying a house

Housing is Seriously Undersupplied

We’ve touched on mortgage rates and the economy, now let’s talk about the basic economic concept of “Supply and Demand.”

Inventory (Supply) is approximately 1.6 million homes short of meeting the demand. The age of 34 is the median age of first time home buyers.

We are on the door steps of the biggest wave of home purchase demand that has ever occurred in the US. It will be bigger than the demand we’ve seen in the last couple of years. Why? Millennials.

The largest generation in history is hitting that median age. From there, they will age up and encounter normal life events that affect their housing needs/wants.  Just look at the chart on the left. From ages 35 to 65+, people buy/sell more and more homes.

It’s a domino effect that experts believe will last for years – we have been under-building homes for the last couple of decades. We can’t make that up overnight or even in just a year or two.

The chart to the right shows that we haven’t had this short of a Supply since the late 1970’s. With supply this low, and more and more buyers coming into the age of home buying, we are short – very short of homes.

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Thinking of building a home? 

Checkout all the details about the Carrick Glen Neighborhood in Pendleton.

Should I buy a house now

To Sum Up… Should I Buy a House Now

Here’s an important caveat before we summarize: It’s smart to find out what the local housing market is doing in your area when considering buying or selling but it shouldn’t dictate your action! Your personal finances and housing situation should be the biggest motivator.

Looking at the data, experts are forecasting that rates are going to drop by the end of the year to offset a recession caused by the FED rate hikes to try and return inflation to the 2% range they like.

When rates drop, buyers are going to come out of the woodwork which will likely throw us back into a tight Seller’s Market – because of too much demand and not enough supply.

There simply aren’t enough homes to meet demand. Buying a home now BEFORE everyone jumps on the bandwagon could mean better terms with the home seller (having inspections, having contingencies, paying list price, etc…) rather than waiting until there are so many buyers out there, they fight for the few available properties. And buyers fight by offering to forego inspections & contingencies, paying above list price, offering appraisal gap coverage, etc…

Don’t lose your dream home over the interest rate. It’s still low today.

So the answer to “Should I Buy a House Now?” is YES. We have a unique opportunity window right now – before rates begin to lower.

Remember, you’re in a long term relationship with your home but you can dump the interest rate and refinance when they go down!

That’s why you hear the saying “Date the rate but marry the house.” 

GPS Real Estate is You’re Guide to Buying and Selling Homes
in Pendleton, Fishers, Fortville, Geist, Lapel, Noblesville, Anderson, Ingalls, McCordsville, Greenfield and more in Northeast Indianapolis!
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