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It may come as no surprise that 92% of millennials planning to buy a home this year said inflation has impacted their goal in a recent survey.
However, most of them don’t let it serve as a roadblock the Real Estate Witch surveyan educational platform from real estate data company Clever.
While 28% of these millennials are delaying their purchase plans, the rest say they respond by saving more money on the purchase (59%), spending more than expected (36%), buying a fixer upper (26%) and buying a smaller home (25%).
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Millennials – who are roughly 27 to 42 years old – are in their prime when it comes to home buying. According to the National Association of Realtors, the typical first-time buyer was 36 in 2022, up from 33 in 2021.
Last year, first-time buyers accounted for 26% of home purchases, compared to 34% in 2021. The combination of double-digit year-over-year price jumps for much of 2022 and rising mortgage rates created an affordability problem for many buyers.
However, the situation is gradually improving as property prices continue to fall. The median price for an existing home in December was $366,900, up just 2.3% from a year earlier and, according to the Real Estate Association, from $370,700 in November. Last June, the median price was $416,000 – 13.4% higher than June 2021.
Mortgage rates have also fallen. According to Mortgage News Daily, the average for a 30-year fixed rate loan as of Jan. 24 is 6.21%. This compares to 7.32% at the end of October. As buyers know, the higher the rate, the higher their monthly payment.
While it’s impossible to predict where rates will be over the course of the year, experts say buyers shouldn’t wait for mortgage rates to drop to where they will be in 2020 and 2021 — below 3% or not much above — because that’s unlikely will be seen again soon.
Interest rates were so low because the Federal Reserve took emergency measures to prop up the economy in the wake of the pandemic that hit the US in 2020.
“These were unusual circumstances,” said Lawrence Yun, chief economist for the National Association of Realtors.
“Buyers should have the mindset that the new normal is a 5% or 6% rate,” Yun said.
One headwind buyers may face is limited choices.
There was a 2.9 month supply of homes last month – meaning at the current rate of sales it would take that long to sell all the homes listed if none came to the market. That’s down 3.3 months in November, but up 1.7 months in December 2021. A balanced market includes supply of four to five monthsaccording to Redfin.
“There isn’t that much inventory in the market,” Yun said.
“Even with the slowdown in housing construction, the days in the market are still less than a month,” he said. “That means people can find an offer they want in the buy market and snag it quickly.”
Homes that have been on the market longer can be a buying opportunity
If you’re hoping to find a seller who’s more likely to lower the price, one strategy is to look for homes that have been on the market longer.
“There’s usually a lot of competition for new listings,” he said. “If you can find a home that’s been on the market for at least a month or two, that’s a great opportunity…sometimes sellers will take 10% to 15% off the list price.”
Also note that this was less likely to be the case for sellers Entering into contracts with a contingent condition – ie making the final sale dependent on, for example, a home inspection – this dynamic has largely changed.
“The lack of valuation and the lack of inspections really went hand-in-hand with low interest rates,” said Stephen Rinaldi, president and founder of the Rinaldi Group, a mortgage brokerage company based near Philadelphia.
“Except in premium areas, in most cases, sellers are again willing to allow for contingencies,” said Rinaldi.
Even if you’re looking for homes near a city, it can be worth expanding your search radius, Yun said.
“There are always cheaper houses further out,” he says. “And those homes tend to stay on the market longer.”
An adjustable rate mortgage may be an option
It may also be worth considering Adjustable-rate mortgage if you’re trying to cut costs, Yun said.
The appeal of an ARM mortgage is the lower initial rate compared to a traditional fixed-rate mortgage. That rate is fixed for a period of time — say, seven years — and then adjusts up, down, or stays the same depending on where interest rates are at that point in time.
“Usually the first house isn’t owned for long, usually it’s five, seven or 10 years,” Yun said. “With that in mind, an ARM might make more sense because it offers a lower interest rate and if it’s going to adjust, it’s time to sell the house.”
While there is a limit to how much the rate can change, experts recommend making sure you can afford the maximum rate if you are confronted with it later.
You may find an ARM with an introductory rate that is at least a percentage point lower than fixed rates, Rinaldi said.
“I think it’s worth evaluating depending on the person’s situation,” he said.
https://www.cnbc.com/2023/01/25/92percent-of-millennial-homebuyers-say-inflation-has-impacted-their-plans.html 92% of millennial homebuyers say inflation has impacted their plans