- US housing affordability is the lowest it's been in over three decades.
- Insider asked five housing experts what advice they have for eager first-time homebuyers.
The average 30-year fixed mortgage rate hit 8% this week, the highest level since 2000.
High borrowing costs are among the reasons US mortgage affordability is at the lowest level since at least 1989, per the National Association of Realtors. For the housing market to return to pre-pandemic levels of affordability, US incomes would have to spike 55%, Andy Walden, vice president of enterprise research at ICE Mortgage Technology, told CNBC last week.
These developments have created huge obstacles for aspiring homeowners. First-time buyers accounted for just 26% of US home purchases last year, per the NAR, the lowest share since data collection began in 1981.
Many Americans have been left wondering when — if ever — the time will be right for them to enter the housing market.
Falling interest rates, price cuts to homes, and new home construction could provide homebuyers some relief over the next year, but the future of those variables remains uncertain.
Insider asked five housing experts what they expect from the housing market over the next 12 to 18 months — and what key pieces of advice they have for aspiring homebuyers.
Waiting for interest rates to fall could backfire
Daryl Fairweather, Redfin's chief economist, told Insider that she expects the Federal Reserve to lower interest rates in the second half of 2024, a development that would likely lead to modestly lower mortgage rates.
But she said waiting for rates to fall before entering the housing market could be a mistake.
"The second that happens, buyers will rush back into the market and we will see a return of bidding wars," she said.
For homebuyers who are financially prepared to buy a home, locking in a high interest rate now — and refinancing at a lower rate down the road — could be a wise move, Lawrence Yun, chief economist at the National Association of Realtors, told Insider.
"Many homeowners first bought their home when interest rates were high — the 50-year average rate on a mortgage is 7.8%," he said. "One can always refinance into lower rates when the interest rate environment improves."
Even if cuts to interest rates cause mortgage rates to fall, they're unlikely to return to the near-zero levels they were in 2022.
Over the next 12 to 18 months, Yun expects mortgage rates to fall from the near-8% they're at now to below 7%, perhaps even close to 6%, he said.
Dr. Selma Hepp, chief economist at the real estate data provider CoreLogic, agreed.
"Mortgage rates are expected to remain around 6% at the end of 2024," she said.
If you plan to stay in the home for several years, homeownership could be a good bet
David Meyer, vice president of data and analytics at the real estate investing platform BiggerPockets, told Insider that as long as you're able to be patient, homeownership tends to be a good investment.
"The best time to buy a home is when you find a house you want to stay in for a long time, and you can comfortably afford it," he said. "Buying real estate is very forgiving if you plan to hold onto it for a long time."
Redfin's Fairweather agreed.
"The most important thing is to find a home that you would want to stay in for five or more years," she said. "If you stay in that home for the long run it will go up in value."
However, continuing to rent may prove to be the better financial decision for some Americans. While home values have historically appreciated over time and helped many Americans grow their wealth, Fairweather said buyers should only lock down a home they can comfortably afford with their monthly mortgage payment.
"You always want to have space in your budget so you can save for emergency expenses," she said.
There's never a perfect time to buy a home
It's impossible to know when the average US homebuyer will be best positioned to enter the housing market.
A shortage of housing construction across the US is among the factors keeping home prices elevated. While there's been an uptick in home building, Jenna Stauffer, a Sotheby's International Realty associate, said that it's unlikely to have a significant near-term impact on affordability.
"We're facing a significant underbuilding issue so even with new construction projects underway, it will be a considerable amount of time before we can bridge the gap," she said.
Improving one's credit score, broadening one's search to less expensive markets, and actively monitoring new housing inventory could be helpful for prospective homebuyers, the housing experts Insider interviewed said.
"Timing the market is very difficult particularly given expectations of higher mortgage rates for longer and continued home price appreciation," Hepp said.
If and when mortgage rates fall, Yun said that some homeowners who have been eager to move — but have been reluctant to give up their low interest rates — will likely decide to sell. This could help boost the housing supply on the market and provide some price relief.
"Some homeowners will give up their 3% locked-in low rates for a better home even if there is some cost involved in taking on higher mortgage rate of say 6%," he said.
But on the other hand, lower rates could also result in "increased competition and less negotiating power" as more buyers enter the market, Meyer said.
"There's never a perfect time to buy."