Housing Market Report (May 2024): Is Now a Good Time to Buy a Home?

Deciding when to buy a home is a crucial financial decision, influenced by a variety of economic indicators and personal circumstances. This report aims to equip you with the necessary information regarding the current housing market, mortgage rate forecasts, economic indicators, and a rent vs. buy analysis to help you make a well-informed decision about purchasing a home now or delaying it for 6-12 months.

Recommendation

Based on our analysis of the current and projected market, we recommend that you buy a home now rather than waiting 6-12 months. The decision is driven by anticipated increases in both mortgage rates and the Federal Funds Rate, which suggest higher borrowing costs in the future. Additionally, the forecast for home prices shows a continued upward trend, indicating that waiting could lead to higher property prices. Combined with modest increases in consumer sentiment and personal consumption expenditures, these factors suggest that purchasing sooner may be more cost-effective than delaying.

Current Housing Market

The current U.S. housing market is experiencing a steady increase in home prices, with the Case-Shiller Home Price Index currently at 316.58 and expected to rise to 332.53 over the next year. Existing home sales are slightly decreasing, which may indicate a tighter market. The number of new housing starts is projected to grow, suggesting ongoing but modest expansion in housing inventory.

Mortgage Rate

The current trend of rising mortgage rates, which are expected to continue increasing over the next year, suggests that borrowing costs for homebuyers will likely become more expensive. This could lead to challenges for individuals looking to purchase new homes, as higher interest rates mean higher monthly payments. Additionally, these conditions might slow down the housing market, potentially affecting home prices and availability.

Home Price Index

The S&P/Case-Shiller U.S. National Home Price Index suggests that home prices are currently on an upward trend, with expectations to continue rising over the next year. This trend indicates that buying a house might become increasingly expensive, posing potential affordability challenges for average homebuyers. For current homeowners, the increase in home prices could mean a gain in home equity.

Economic Factors to Consider

Economic indicators such as the Federal Funds Rate, Personal Consumption, and Consumer Sentiment are all showing upward trends, suggesting a strengthening economy. However, this often translates into higher interest rates as the Federal Reserve aims to manage inflation, presently seen rising across consumer prices, particularly in housing.

Fed Funds Rate

The Effective Federal Funds Rate (DFF) is currently at 5.33% and is projected to rise significantly over the next year, reaching 7.73% in six months and further increasing to 11.21% in twelve months. Such increases in the Federal Funds Rate typically lead to higher interest rates on loans and credit, affecting the average person by making borrowing more expensive. This could potentially slow down consumer spending and impact housing affordability, as mortgage rates are likely to rise alongside the Federal Funds Rate.

Rent vs. Buy Analysis

Considering the current rise in home prices and projected higher mortgage rates, buying a home now could be more beneficial than renting, especially over the long term. The break-even point in most markets is currently favorable towards purchasing, especially when factoring in the potential for home equity growth versus renting costs.

Risks and Uncertainties

Potential risks include higher than expected inflation driving up interest rates and housing costs more sharply. Market timing is challenging, and sudden economic shifts can affect mortgage rates and real estate values. It’s crucial to scrutinize these variables within the context of personal financial resilience to economic fluctuations.

Factors to Consider Before Buying a Home

Assess your financial stability, considering factors like job security, credit score, and debt-to-income ratio. Ensure you have sufficient funds for a down payment and that your long-term income is stable. With rising mortgage rates, locking in a rate sooner could potentially save you costs as compared to waiting.

Conclusion

In conclusion, the current economic forecast and housing market trends suggest that it might be more cost-effective to buy a home now rather than wait. Factors such as rising mortgage rates and home prices, coupled with economic strengthening, tilt the balance towards buying at the present moment. However, personal financial circumstances and housing needs should drive the final decision. Consulting with financial and real estate experts can provide tailored advice and ensure you make the best decision for your situation.

Hey everyone, I worked on this with @chronos so I'll add in some context from my side.

Myself and pretty much everyone I've talked to thinks that rate cuts are on the horizon. It's what all the rumors I'm hearing are saying and it seems like the most logical thing given the state of the economy.

However, this post would be an example of trusting the data instead of going with the gut. Only time will tell what actually happens, but the forecasts in this post are projecting even higher rates - the exact opposite of our human intuition.

The forecasting models are looking at data going back to the 1980s and they're performing a number of validations (10 of them). This is supposed to see if the model really can predict an unknown future.

However things play out, we'll do a retrospective once we have the real data. This way, we can hold ourselves accountable for the decisions made here and reflect so that we can improve the next time around. We'll report back in with that ~6 months down the line.

In the meantime, we'll continue to post these reports every month and note if the decision to buy now or wait ever changes.