High mortgage interest rates combined with a tight housing market mean military households have some things to think about before they decide whether to buy a home or rent.
VA home loan and mortgage industry insider Michelle Crumley of Caliber Home Loans shared some of her best advice in an episode of the "PCS with Military.com" podcast. Here's what she said.
Market Conditions Vary by Location
The housing situation at a given duty station may not reflect what's going on nationally or wherever you are now. Crumley advises getting informed not only about the big picture but also what's happening locally.
For example, "I read the paper this morning," Crumley said, "and there's two articles side by side. They both have valid points, but they are completely contrary to each other as to what they think might be happening with the financial markets."
However, the current trend of "a lot more buyers than there are houses" is likely to continue, she said.
More Houses Are Starting to Come Onto the Market
Yet the housing inventory may not stay as low as it is now.
"The good news is while, yes, inventory is still low, we are seeing it start to grow a little bit. So there are more houses that are out there than have been in the past," Crumley said.
"The average now is 56 days on market, which is a lot better than where it has been, but it is still expected to remain very tight for the year."
Prices Are Still Going Up -- Just Not as Fast
Even while seeing the market "cool a little bit," prices aren't falling as a rule, Crumley said. With the exception of home values around big cities, where values have fallen somewhat, elsewhere they're "relatively flat or increasing a little."
As of November 2022, the median purchase price for a home in the U.S. was $416,000, "which is up considerably from where it was pre-pandemic" but also 11% higher than a year prior, she said.
So prices are still going up, "and we don't really see any abate to that," Crumley said.
On the bright side, "that also tells you that prices aren't going to be plummeting anytime soon. So that idea that you could potentially buy today and that house value is going to drop 10, 15, 20% is not likely at this point."
Higher Interest Rates Are Nevertheless Relatively Low, Still Expected to Fall
After years of ultra-low interest rates as low as the 2% range, military families' mortgage math is now factoring in loan rates closer to 7%.
Yet "6%, 7%, historically is still low. Now, for the vast majority of us that have been in the home-buying realm for the last decade or so, they're a lot higher than they have been."
That sting exacerbates the difficulty of the tight market and rising prices, Crumley said, "because it directly impacts the affordability of that house -- what you can buy."
Crumley said the rates may have peaked for 2023, however, and "by the time we get into the third and fourth quarter, that we may even see them drop back down to kind of the mid- to low sixes."
Further out she cited the Mortgage Bankers Association's projection of rates falling "back down into the mid- to lower fours" by 2025.
Crumley didn't think rates alone should deter homebuying but said the higher they are, the more important it is to stick to your budget and not stretch it to the point where you struggle to make payments.
"We always say, 'Date the rate,'" Crumley recited. "'Marry the house -- date the rate.' You're not going to be stuck with it because as those rates come down, you have the opportunity to refinance."
Could Now Be the Right Time to Rent Instead?
Further complicating the coming decision is high demand for base housing that's translating to long waiting periods at some bases, meaning some households won't have much choice but to look for a place to live in the civilian community.
For those who won't be at their new duty station for more than two years, their better bet may be to rent rather than buy, Crumley acknowledged.
"At two years, that's really hard for the cost of getting into the house," Crumley said. "Even if values did not increase, it's still hard over two years to project enough appreciation that you'd get out unscathed, right? That you wouldn't have to bring any money to the closing table, or that you'd make back all of the costs along with the purchase."
Still, "hindsight is 20/20," she said. "There are a lot of people that are kicking themselves that didn't buy, you know, four or five, six, seven years ago."
What to Know if You Buy
For families who know they want to buy, the roller coaster of a market aside, Crumley's advice for making that happen:
- Be ready to make an offer. Good properties are still moving fast, and you need to be in a position to do the same. That means getting fully approved for a loan as soon as you can. "Don't just get preapproved with your lender, but actually work with your lender to get fully credit approved so that you know and your seller knows that you've been all the way through underwriting," Crumley said. "Then, one: You know you're good. There's no unexpected hiccups. And the seller that you talked to knows that if you needed to move fast on that closing time frame, you could."
- Look for the least expensive house in the most expensive neighborhood. Your home value in the less expensive house will grow faster than that of a more expensive house in the same neighborhood, Crumley said. "And maybe don't be afraid of fixer-uppers," she said. "You can always do the upgrades to even add more value to it."
- VA Loans Are Subject to Inspections. If a fixer-upper's trouble spots involve the safety or soundness of the property, however, your loan may not be approved, Crumley said.
- Stay the Course. Stick to your budget and try to set your emotions aside, Crumley advised. "Really don't get caught up in trying to keep up with the Joneses. Don't get caught up in that Vegas mentality of, 'Oh, they didn't accept this bid. I'm going to bid higher' if there's a bidding war. Remember, stick to the facts, know your budget and then stay the course."Keep Up-to-Date for Your Next PCS
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