If you were looking to purchase a house this year, don’t be surprised if it’s slipped your grasp.
That’s because rising mortgage rates are expected to be the main reason homebuyers won’t be making the leap this year, Zillow says. Historically low mortgage rates have gone up since the presidential election in November and the Federal Reserve voted to raise the federal funds rate in December. This can have a huge impact on 2017 mortgage rates.
“When you combine higher mortgage rates with increasing home values, mortgage affordability starts to suffer, and buyers will have to spend more and more on their monthly payments,” says Zillow chief economist Svenja Gudell. “This makes it even more important for buyers to prepare their finances, and shop around to make sure they are getting the best possible rate.”
Zillow says home values rose almost 7 percent last year and are expected to rise another 4.6 this year. These cost increases will be a huge determining factor for potential homebuyers to either make the leap and buy a home or wait for costs to go down.
“Rising mortgage rates, inventory shortages and demographic shifts will be the main drivers of the U.S. housing economy this year,” Gudell says. “Especially for first-time buyers who will face tougher competition for entry-level homes and often operate with a tighter budget than move-up buyers.”
Despite the expected increases in home values and mortgage rates, Zillow says most experts believe the market won’t be affected until mortgage rates hit 5.5 percent, which isn’t expected this year.
Want a cheap home? Head to the Lone Star state
Home values are up nationally, but some states and metro areas aren’t rising as fast as others. If you’re looking to buy a home but can’t afford it where you live, you may want to move to Texas.
Cost of living in Texas is way down. Dallas-Fort Worth, Austin, and Midland are all some of the best cities for return on salary. Some Texas cities are way below the national average.
We all want to buy but we can’t afford it
Just a few months ago, most Americans agreed that it was a great time to buy a home, despite rising home costs and stagnant salaries. Those making six figures or more were most likely to take out a mortgage. However those Americans making that much money weren’t upset that they would have to pay off a mortgage while also paying off other debt, like student loans.
Unfortunately for Americans making $50,000 or less, buying a home while tackling other debt woes doesn’t look too likely.
While homes are selling, and cheap ones at that, those who need homes are still the ones that can’t afford them. Depending on where you live, you could be paying 10 percent of your income or 75 percent of your income to a mortgage payment. Traditionally, no more than 30 percent of your income should go to housing payments.
While most experts believe our market won’t be hurt too much this year, it’s important to pay attention to how the rising values and rates will affect your chances at buying a home.
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