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How Much Should the Housing Market Affect Your Home-Buying Decision?

A very neat American house with gorgeous outdoor landscape.
As everybody knows, the housing market fluctuates, and as it rises and falls, home prices and mortgage rates rise and fall as well. Buying when the market is favorable is clearly better than buying when it’s not doing well, but what exactly does that mean? And how much should that affect your buying decisions?

There are several ways to think about the “housing market,” and all of them could play a role in your decision. It certainly would be smart to be familiar with each.

The Broad Housing Market

First, consider the housing market on the broad scale — the level most journalists are talking about when they refer to national averages. Several different interconnected variables make up the current housing market in those terms:

  • Home prices. The median home price is the leading indicator for the current state of the market, since its increase or reduction depends on all the other factors.
  • New home sales. This figure is regarded as a major indicator of the strength of the economy, since new homes typically cost more than older ones.
  • Existing home sales. Sales of existing homes affect both current and prospective homeowners’ prospects for moving.
  • Housing inventory. The current number of homes on the market also plays a role in home prices (as well as other variables).
  • Stock prices related to housing. Economic conditions can also affect the performance of the stocks of real estate companies, financial companies, and other businesses related to the real estate market, which in turn can shape the market even further.
  • Mortgage rates and availability. The financial industry has a complex relationship with the real estate industry. The effects of the “market” on mortgage rates and mortgage availability warrant their own analysis, but it’s worth mentioning them here because of how they can affect home purchases and, of course, prices.

These variables work together and are interdependent, which means a shift in one variable will likely affect all the others as well. That can lead to a rising or falling tide that eventually favors the buyers (in the form of high housing availability, lower prices, and longer times to sell homes), or the sellers (who benefit from low housing availability, higher prices, and shorter time to sell homes).

Overall, fluctuations in these items can have a significant effect on home prices. During the past 10 years, for example, prices in certain regions dropped as much as 20 percent after the recession of 2008, and returned to 120 percent of their original price by 2017.

If you’re looking at a $150,000 home, the housing market could readily depress that to $120,000 or bounce it up to $180,000 within a decade, or even a year.

Local Housing Markets

You might assume the national housing market would have an enormous impact on your home-buying decision — and to some extent, that’s true — but there’s a variable that may override it entirely: the local housing market.

The national housing market’s indicators consist of averages of thousands of neighborhoods around the country, and those neighborhoods experience peaks and valleys of their own at any given time. For example, the overall market nationwide may be plummeting, but a particular neighborhood’s new school system rating and job opportunities could push home prices in its fairly isolated area higher.

Conversely, in a high-priced market, you might be able to find a local neighborhood where housing prices are comparatively low. Local markets depend on all the variables we mentioned above, plus other items of interest to homeowners such as crime rates, local attractions, city taxes, school district quality, and dozens of other variables.

These require far more investigation than broad national trends, and may fluctuate faster than nationwide averages, resulting in faster shifts in buying and selling opportunities.

Effect on Mortgage Rates

Mortgage rates and home prices have an interesting and mutually impacting relationship. If you take a look at historic mortgage rates, you’ll see significant ups and downs over the years.

As of the time of writing, a 30-year fixed-rate mortgage had an average rate of 3.88 percent. That’s down from 4.15 percent earlier in they year. In the past 20 years, rates have crept toward 9 percent on occasion, and 16 percent mortgages were not uncommon in the early 1980s.

Since you’ll likely be studying month-to-month fluctuations rather than year-to-year, it’s a safe bet that rates will remain within the 3-to-5 percent range for the foreseeable future.

So what’s the difference between a 3.88 percent mortgage and a 4.15 percent one (a shift that occurred over the past several months)? Consider a mortgage of $150,000.

An interest rate of 3.88 percent would entail a monthly payment of $706, and a total mortgage cost of $254,082. A rate of 4.15 would set monthly payments at $729, with a total mortgage cost of $262,496.

Thus, even an ostensibly minor hike of 0.27 percent would end up costing you at least $12,400 more over the course of your loan … so don’t minimize the effect that shifting mortgage rates can have.

Special Considerations

There are also some special considerations that may make you discount or even ignore the current condition of the housing market, such as:

  • A unique buying opportunity, such as finding a house that’s severely undervalued because the owner is desperate to move.
  • A unique selling opportunity, such as encountering a buyer willing to pay you more than your home is fairly worth.
  • Job demands, which may force you to move for a better career opportunity, although home prices may be undesirably high.
  • Predictions about the future, which may compel you to purchase a house in a highly priced market because you think prices are going to rise even higher.

The Bottom Line

Overall, the national housing market, the local housing market, and your current mortgage rate could have an impact on what you end up paying for a house that amount to tens of thousands of dollars. That being said, the market remains notoriously hard to predict, and some of these variables end up cancelling one another out.

If you’re making a value investment, the housing market should play some role in your buying decision — but it shouldn’t be the only consideration. Use it as but one tool in your decision-making arsenal.

Regardless of the market, when you’re ready to start looking for a home, you’ll want the right tools to find the types of houses that interest you. Rely on Green Residential’s easy-to-use search tool to find homes in your area, and take one step closer to finding your dream home.

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