Millennials are in peak nesting mode. We want the outdoor space many apartments lack, or the room to grow that a starter house doesn’t offer. There’s just a not-so-small problem.
The median existing home sales price of U.S. homes was $389,500 in August, according to the National Association of Realtors. That’s a 7.7 percent increase from August 2021. The average interest rate for 30-year fixed-rate mortgages topped 6 percent as of Sept. 15 this year, according to Freddie Mac. Compare that with an average rate of 2.86 percent just one year prior—that’s a 110 percent increase.
It can be hard to compete when an open house feels like a cage match. It’s enough to make anyone retreat to a rental for a while. “We’re seeing that those who were thinking of buying a home just aren’t interested anymore,” says Natalie Slagle, a certified financial planner and founding partner of Rochester, Minnesota-based Fyooz Financial Planning. “People aren’t as willing to make big financial moves when it feels like there’s uncertainty.”
Reevaluate Your Current Situation
In slowing down your house hunt, you’ve given yourself the gift of extra time. You can reassess what’s realistic for you. Over the next year or so, your life may change a lot, meaning your list of must-haves for a home might need a few edits.When Jason Fletcher was looking to buy his first home in Orange County, California, in 2019, he was single. At the time, he didn’t find The One, real estate-wise, but it wasn’t long before he met his now-wife. They’re currently expecting their second child and still hoping to swap their rental for a home they own, one quite different from what Fletcher searched for three years ago.
However, their search is coming up short. “I’d say right now, at least in our area, we have not seen inventory increase a whole lot,” he says. “That indicates to me that people are comfortable with the interest rates they have and they aren’t selling.”
Amanda Astey moved to San Francisco with her husband seven years ago. They considered buying a home after living in the city for two years, but backed out after they were unable to find anything in their price range at the time. Now, they’ve advanced in their careers and are open to resuming the search. “Even with that, we’ve been pretty discouraged,” she says.
Become an Even More Attractive Buyer
If your budget and mortgage pre-approval were so-so this time around, take the next few months to beef up your finances so you’re in a stronger position later on.One place to start is with discretionary spending. If you can cut back, and possibly increase your income with a promotion, job or freelance work, you can add to your savings and be prepared to make a larger down payment. You may also be able to increase your overall budget for a home. Fletcher and his wife cut back on buying new clothes and are keeping their paid-off cars longer to avoid car loans. “At this point, we’re trying to make more money and get promotions,” he says.
Paying down existing debts can help, too, as that will lower your debt-to-income ratio.
Adjust Your Interest Rate Expectations
Sometimes your life plans don’t line up with economic conditions, so you may not be able to wait indefinitely for interest rates to go down (assuming they will, which is never guaranteed). In that case, you’ll have to stomach higher monthly payments, and if interest rates go lower in the future, you can refinance. You may have to make some concessions to accommodate a more expensive loan, like reducing your overall budget or widening your search over a larger area.Phil Lawson, a real estate agent in Richmond, Virginia, notes that even now, interest rates are low, historically. When he bought his first home 20 years ago, he paid 7.6 percent.
“This is a stupid cliche, and I’ve said it over the years,” he says. “Marry the house but date the rate.”
