Should You Buy a Home in 2022? You need to know (2023)

This story is part of Recession Help Desk, CNET's coverage of making smart money moves in an uncertain economy.

After two years of an extremely hot and competitive real estate market withhouse prices through the roof, there are some signs that these record highs may start to level off. Last April, increases in house pricesrejected for the first timein four months, as well asnew home sales.

But many experts point out that given the continuing property shortage, home prices will continue to rise in 2022, just at a slower rate. In addition, potential new owners have to face relatively high rates, which keep the monthly mortgage payments expensive. Although mortgage rates have dropped slightly since the Federal Reserve announced itsfourth rate hike of the yearkeep fightinginflation, are still more than 2% higher than they were at the start of 2022. So homebuyers should expect their mortgage payments to be higher this year, even as demand contest.

"If we've seen inflation spikes, we've seen mortgage rate spikes," said Greg McBride, chief financial analyst at CNET's sister site Bankrate. "The outlook for a weaker economy will hold as inflationary pressures start to show evidence of easing. If it takes a few months and that doesn't happen, then all bets are off."

Although mortgage rates appear to be stabilizing, when all of these factors are taken into account, a homebuyer will now pay almost 47% more for the same property compared to a year ago.according to

buying a houseIt's one of the biggest money moves you'll ever make. It's a uniquely personal decision that requires evaluating your long-term goals while making sure you're financially prepared from the start.initial paymentinterest on a mortgage loan. Your job stability, household needs, and available inventory where you want to live play a big role in determining what makes sense for you.

Here are the most important things to consider when buying a home in 2022, including why it might make sense to wait or rent rather than buy.

Main factors to consider when buying a house in 2022

Right now, home prices are still experiencing double-digit growth across the country and all-cash offers still account for about a quarter of home listings, according to Jessica Lautz, vice president of demographic and behavioral information at the National Association of Realtors. Does that mean you should try to wait until prices start to drop? Not necessarily.

The first thing to keep in mind is that expert predictions are imperfect. No one knows what will happen to the economy, even withwarning signsfor events such as recessions. And timing the market, or trying to make decisions based on what you think will happen to prices or rates in the future, is generally not a good strategy. "With housing, buyers tend to obsess over home value and how buying at any given time might be best for valuation and equity," said Farnoosh Torabi, personal finance expert and editor-at-large for CNET. "That's important, but the monthly house payment is what really matters in the end."

Even if you have a plan, be prepared to pivot in this market. Maggie Moroney, 27, is trying to buy her first home in the Washington, DC area, but she can't find anything affordable. Between sales and leases, inventory is low in both markets.

"You could probably try to buy something, but it would be a bit difficult, especially with interest rates," he said. Moroney doesn't want to rush the decision and plans to wait if he doesn't find a home he likes, hoping that more inventory will start to hit the market. "I'd rather have a lease I'm not too passionate about than a house I'm not in love with."

If you're hesitating between buying a home and waiting, here are some factors to consider.

1. Mortgage Rates and Price Trends

In today's real estate market, high prices coupled with home loan rates are two of the biggest factors at play. While mortgage rates fluctuate daily, they are expected to remain in the 5-6% range for the rest of 2022, although what happens next with inflation will tell where rates go. So far, rates are already more than 2 percentage points higher than a year ago andsurpassed the 5.5% mark in June, but seems to be calming down since the announcement of the Fed's fourth rate hike in July.

Although rates have come down slightly with the most recent interest rate increase, it's still important to understand how your fixed rate mortgage will affect your monthly payments, as well as the total amount you'll pay over the life of your loan.

For example, if you take out a 30-year fixed-rate mortgage to buy a $500,000 house at an interest rate of 5.2%, youpay $488,000 in interestover the life of your loan. But if you wait and buy a $450,000 home at 6.5% interest, you'll end up paying $574,000 in interest over the life of your mortgage. So even if you paid less for your house, you're paying more than the price difference due to interest over three decades.

Trimming your budget and looking for homes that may be smaller or in less expensive neighborhoods is an option to consider if higher mortgage rates have made your previous housing goals unachievable.

2. Financial and personal goals

Home ownership is still considered one of the most reliable.ways to generate wealth🇧🇷 When you make your monthly mortgage payments, you arebuilding equity in your homewhich you can access later. When you rent, you're not investing in your financial future in the same way that you are paying off a mortgage.

Another factor to consider is how long you plan to live in the house. If you expect to live there for a decade or more, you probably will.refinance your mortgageat a lower rate, lowering your monthly payment in the process. However, if you plan to move in a few years, it probably doesn't make financial sense for you to refinance. In that case, it is worth considering aadjustable rate mortgage, which can help offset today's high mortgage rates by offering you a lower introductory interest rate that only adjusts or increases later in the term of your mortgage.

3. Future housing trends and recession risks

As competition from buyers lessens when buying a home becomes more and more out of your reach, it could mean inventory is opening up where you're looking. In June, the national inventory of available homesgrew 18.7%this year compared to last year. More available inventory means you have more homes to choose from, increasing your chances of buying something you really want this year instead of fighting a bidding war for what's available in your budget.

But there is also talk ofimpending recession🇧🇷 By waiting to buy, you can avoid overpaying for a home that could lose value in a looming economic downturn, Torabi said. Also, if the economy slows, the Federal Reserve may raise interest rates less aggressively, which could benefit potential homeowners trying to get a better rate on their mortgages.

Is it better to rent than buy now?

It depends, especially when we are faced with an unpredictable period of high inflation.

On the one hand, if you buy a house and insure afixed rate mortgage, this means that no matter how much prices or interest rates rise, your fixed payment will stay the same every month. This is an advantage over renting, as there is a good chance that the landlordraise your rentto contain inflationary pressures. Right now,rents rise faster than wages, and if homebuyers are locked out of the housing market, there will be more pressure to rent, increasing competition. Many are already experiencing a booming rental market, leading torental bidding warsand evictions.

On the other hand, while a fixed-rate mortgage can offer more predictability and budget stability, "as long as inflation continues to outpace wages, there may be benefits to renting now that the economy worsens," Torabi said.

For example, one advantage of renting over buying is that you can save money that you would need for a down payment. In a time of economic uncertainty, if you don't have to worry about taking a down payment and draining most of your bank account to secure a home, you may have more liquidity. Having more cash on hand can provide additional security if a recession negatively affects your financial situation.

"It's important to know the differences between the cost of owning a home and the cost of renting a home," said Robert Heck, vice president of mortgages at Morty, an online mortgage marketplace. "How much will home insurance cost? How much will annual property taxes cost? You may not be used to paying property taxes if you are renting. Consider the costs of maintaining a home."

Ultimately, renting or buying often comes down to practical considerations, like whether you need more space to raise a family or your lease is about to end, regardless of market conditions.

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