Spring is a popular time for homebuying and selling, but you may be wondering if you should sit this season out. After all, inventory is dropping, mortgage interest rates are rising and the recent tax cut has negatively impacted some of the housing market. On the other hand, if you're concerned that interest rates and sale prices will go even higher, you might decide that now is the perfect time to buy a house.
If you are trying to determine if you should buy or sell a house this season, there are several factors you should consider. Here's what to expect this spring.
An imbalanced supply and demand. In past years, you could afford to take time gathering your paperwork. You could leave a room unpainted when putting a house on the market, and you could lowball an offer and realistically hope that the seller would take it anyway.
But with the rising demand, this is no longer the case. "It's such a competitive market that it can be difficult for buyers to make their offers stand out," says Kevin Deselms, a realtor with RE/Max Alliance in Golden, Colorado. That means that ideally you'll offer a significant down payment, he says.
Don't fret if you don't have enough for a large down payment, however. "Most first-time homebuyers don't [have enough]," he says. But if you can, you'll be ahead of where many of your peers are.
Another way you can stand out is by selling a house that doesn't need a lot of renovations, says Allen Johnson, an associate broker and realtor at AJ Team LLC/Keller Williams Realty in the District of Columbia.
"Many sellers have not done the necessary repairs and renovations to make buyers want to jump fully off the fence," Johnson says. A lot of buyers love to look at renovated homes on channels like HGTV, "but when it comes to real life and real-cost renovations, they aren't so excited," he says.
Still, if the home you're selling has some of those pricey renovations in place, it could help attract buyers, Johnson says. "Spring buyers are looking for the perfect home. They have been in the house all winter on various [real estate] sites and have seen everything. When they see something that looks great, checks all the boxes and is priced right, they will pounce," he says.
Changes from new tax law. "The biggest implication of the new tax law is the change in deductible mortgage interest. Previously a homeowner could deduct the interest on a mortgage up to $1 million. That amount has been reduced to $750,000," says William Fastow, an associate broker with the Appleton Properties Group with TTR Sotheby's International Realty in the District of Columbia.
As for the tax change itself, "This may seem like not much of difference for many homeowners, but in competitive urban markets, like D.C., San Francisco, New York [and] Boston, a starter home is almost always over $750,000," Fastow says.
In other words, if you're buying a starter home in a big city, and you were counting on that deductible mortgage interest to make owning a home more affordable, you may want to reconsider purchasing a house right now.
Higher interest rates. If you are thinking about buying a house, and you need a reason to start looking, consider rising interest rates. After all, the Federal Reserve is expected to raise rates two more times this year and three more times in 2019.
"There is no doubt that houses are becoming less affordable. Rising interest rates raises monthly costs for buyers, but it also means that buyers will qualify for less money and need larger down payments to secure their notes," Fastow says.
Another problem with interest rates is that the hikes hit buyers from both sides, making property purchases less affordable, Fastow says. "When inventory is scarce, demand drives up prices, which creates an environment where home values are moving up independent of interest rates," he explains. "Buyers should pull the trigger as soon as possible if they can find a home they like, as the Fed is scheduled to raise rates at least two more times before the end of the year, and 5 percent 30-year fixed notes are not far off. If possible, buyers should stretch now while money is still historically cheap."
Mike Tizzano, a Mesa, Arizona-based mortgage broker with Fairway Independent Mortgage, agrees that buying a house sooner is better than later. "As rates and prices go up, you'll be able to purchase less home for your money. On a $200,000 loan, every eighth of a point the interest rate increases translates to roughly $14 more a month in additional payment," he says.
[Read: 12 Things That Trip Up Homebuyers.]
Still, the general rule of thumb is that you shouldn't buy a house you can't afford or purchase a house in a rush because you're worried about the housing market in the future. In other words, buying a house is a major investment. If you're worried that not buying a home now would be a mistake, buying a house before you're prepared may be an even bigger misstep.
Buying your first home is an exciting – and often daunting – endeavor.
In addition to setting your budget, comparing neighborhoods and visiting properties, you'll likely also get a crash course in mortgages and home inspections, among other things. According to the National Association of Realtors' 2017 Home Buyer and Seller Generational Trends report, first-time buyers made up 35 percent of all homebuyers, up from 32 percent last year. U.S. News talked to seven first-time buyers from across the country to find out what they wish they'd known before jumping into the real estate market.Beware of wire transfer scams.
Beware of wire transfer scams.
Two hours before Shannyn Allan, founder of the blog Frugal Beautiful, was supposed to close on a home in San Antonio, she received a last-minute email with instructions on where to wire her down payment. Turns out, fraudsters had scraped her information from the title company and posed as the company when they emailed her instructions. She later discovered the fraud and spent weeks trying to get the banks to recover the funds so she could close. "I wish the title companies would have let me know what to watch out for with wire fraud, and advised me to do a cashier's check," she says.Don't skimp on upgrades.
Don't skimp on upgrades.
After freelance writer Leah Ingram and her husband built their first home in 1999 in New Hope, Pennsylvania, they immediately regretted choosing the smaller model with a lackluster kitchen and bathrooms. "A couple thousand dollars for those upgrades spread over a 30-year mortgage would not have been a hardship," she says. The couple also thought that buying on a cul-de-sac would ensure there were other kids nearby. There weren't, however, and they moved after seven years.Save extra money for closing costs.
Save extra money for closing costs.
Christine Cummings and her husband are in the process of buying a home in Somerville, Massachusetts. Cummings, who is VP of marketing at All Set, a mobile app that aims to connect homeowners with lawn service and house cleaning professionals, says she wishes she'd known how much to budget for closing costs. "There are all these little fees here and there adding up to the actual closing date, making the closing costs just a little harder to pay," she says. In addition to a down payment and closing costs, new homeowners should also budget for potential surprises such as a broken air conditioner and other maintenance costs.Check the sewer line.
Check the sewer line.
After buying a home in New Jersey in 2003, Kenneth O'Connor, founder of a YouTube channel on saving for college, discovered his single-family home had major sewer problems. "If there are large old trees on the path of the sewer line, you need to make sure the roots are not constricting the pipe and cracking it," he says. It used to be harder to detect sewer problems, but "now [a home inspector] can send a tiny camera down the sewer line to determine if it's safe," he explains, emphasizing the importance of not overlooking this step.Consider the school district.
Consider the school district.
When Ali Wenzke, founder of The Art of Happy Moving, and her husband bought a townhouse in Chicago, they didn't consider the school district because they didn't have kids yet. "When we sold our home four years later, we had three kids and their educations to consider," she says. "We moved because we needed the space, but we were lucky that we accidentally bought in a great school district." Even if you don't plan on having kids, she recommends investigating the school district for future resale value.Price out renovations in advance.
Price out renovations in advance.
After buying her first home in Atlanta, Kali Hawlk, founder of a marketing firm that specializes in working with financial advisors, wishes she'd factored in the cost of upgrading to double-pane windows. "I could never get the temperature downstairs above 65 degrees in winter because the entire back wall of the house was single-pane windows," she says. "I wish I had been aware of how expensive it would be to replace all of the house's single-paned windows with new ones," she explains. She thought upgrading the windows would be a simple fix, but it wound up costing around $10,000.Look beyond surface details.
Look beyond surface details.
Fancy fixtures and accent walls are nice, but some flipped homes mask bigger problems. "When we purchased our first home, we found out very quickly that aesthetically pleasing did not mean physically sound," says Dan Mackin, host of the Ditching 9 to 5 podcast. "Your inspector can't find things underneath the walls. Just because a flipped home is pretty doesn't always mean it's [of] better quality," Mackin says. His first home (a flip in Colorado) had so many problems, he moved out two years later and earned his real estate license so he could help others avoid the same issues.Read More
Williams got his start working in entertainment reporting in 1993, as an associate editor at "BOP," a teen entertainment magazine, and freelancing for publications, including Entertainment Weekly. He later moved to Ohio and worked for several years as a part-time features reporter at The Cincinnati Post and continued freelancing. His articles have been featured in outlets such as Life magazine, Ladies’ Home Journal, Cincinnati Magazine and Ohio Magazine.
For the past 15 years, Williams has specialized in personal finance and small business issues. His articles on personal finance and business have appeared in CNNMoney.com, The Washington Post, Entrepreneur Magazine, Forbes.com and American Express OPEN Forum. Williams is also the author of several books, including "Washed Away: How the Great Flood of 1913, America's Most Widespread Natural Disaster, Terrorized a Nation and Changed It Forever" and "C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America"
Born in Columbus, Ohio, Williams lives in Loveland, Ohio, with his two teenage daughters and is a graduate of Indiana University. To learn more about Geoff Williams, you can connect with him on LinkedIn or follow his Twitter page.
Teresa Mears | May 3, 2019
Conventional wisdom says 20%, but you can buy your first home with much less down.