Is this the Perfect Time to Buy or Sell your Home?

Hey everyone, welcome back to We're Talking Money. I'm Phil Clark, and today we're diving into one of the biggest questions in personal finance: is the cost of buying a home, and is the cost of waiting worth it? With interest rates and price trends, there's a lot to consider, and timing can be everything. Now, to further complicate things, we have a presidential transition in January, January 20th to be exact.

But here's the truth: waiting for the perfect market, it could cost you more than you think. So I believe we need to talk about what's happening in the housing market right now, what might be coming, and how you can make smarter decisions for your future. [Music]

So let's talk about mortgage rates. I think a lot of people are confused since the Federal Reserve, they cut rates twice in recent weeks, yet mortgage rates have spiked. And many people thought mortgage rates would do just the opposite; they should be falling. So what's up here? Well, suffice it to say, mortgage rates are influenced by federal rates, but the federal rates don't dictate mortgage rates.

If you want to know where mortgage rates are headed, you should be paying attention to something called the 10-year bond. And so that's a longer term bond, and mortgage rates, they move more in tandem with the 10-year than they do the Federal Reserve rate. The 10-year is greatly influenced by bond buyers and sellers in the secondary market. For example, investors selling bonds and, say, moving into stocks, among many other factors, takes the 10-year yield and actually moves it up, and that in turn moves mortgage rates up.

So unfortunately, mortgage rates most recently, they ticked up to around 6.7%, and that's higher than many people expected. On the other hand, it's lower than we saw just a year ago. Now, I believe that rates will continue to slowly decline through 2025, but trying to time when this happens, I think it's a losing proposition.

Think about it this way: with President Trump taking office on January 20th 2025, markets now have something that they really like, and that is certainty. And in this case, it's certainty of stable tax rates. This alone can create a lot of confidence. It already has. And it also supports the notion of a growing economy. That tends to send the longer term bond yields much higher, and that's what we've seen in recent weeks. Subsequently, mortgage rates will likely follow.

Now, even though rates probably don't get back to, say, that three or 4% that we were enjoying just a few years ago, a growing or burgeoning economy, it can certainly help consumers afford the higher rate. In other words, it's an offset. So if you're thinking, when rates drop I'll jump in, you're not alone.

There is a twist, and that's inventory. Right now we're looking at a pretty intense housing supply shortage, and with that, inventory is still far below pre-pandemic levels. Demand is outweighing supply, and that equals home prices remaining high. So why the shortage? Well, many homeowners, very simply said, are locked into these ultra low mortgage rates from just a few years ago. In fact, my mortgage rate is 3%. No way am I ready to sell my home, even though it has increased in value.

But if you have a mortgage rate around, say, 3%, moving to a home with, say, a six or 7% or even more type mortgage rate, it doesn't look very appealing, and you're probably not going to do it. So a lot of potential sellers are holding height. It limits their options; it also limits the options for the buyers. Hence where we are today.

But there is a hopeful note. Let me explain. If rates drop to, say, around 5%, some of these locked in homeowners, I think they will start considering putting the for sale sign in the front yard, particularly since the value of their home will easily offset this slightly higher cost of capital. This could ease that market, and it could offer more options for the new buyer. But I think you should realize this is going to be a slow change. This is not happening next week or next month. I think it will gradually occur over the course of 2025. Now, as rates gradually drop, inventory will improve, and with that rate drop, I believe builders, they're going to come back to the party. They'll start new projects.

Let's talk about home prices specifically. Right now the median home price in the United States, it is well above 400,000. In fact, it wouldn't shock me if it got to 500,000. That's a huge increase from where it was just four or five years ago. So for sellers, that's great news, but for buyers, it's really challenging. Prices have been on an upward trend for several years, and with demand being high and supply tight, we're not expecting to see a dramatic drop anytime soon.

So if you're waiting for prices to fall significantly before you step in to buy, you might be waiting a long time, at least based on what we're seeing in all of the data. Home prices have risen more than 50% since 2020. That's incredible. In simple terms, things will likely be the same for quite a while.

I think it's important to have a realistic budget and to focus on what's affordable for you. Stop focusing on homes that once were affordable, but in this environment, perhaps they're not. If you're planning to buy, you might have to make some compromises. It could mean adjusting your expectations or even looking outside of your ideal location. Location can change the price of a home pretty significantly.

You might be wondering about housing inflation, so I want to touch on that. Housing related costs like rent, home prices, upkeep, all of those have finally started cooling after spiking to over 8% last year. We're now seeing that growth somewhere around the 5% range. That's a positive sign, but it's unlikely that it's going to go much lower, at least in the short term. If you're holding out for significant drops in housing inflation, frankly, it may not be worth the wait. We could see it stabilize, but not necessarily at levels that make housing significantly cheaper. Where they are today is probably where they're going to be for a while.

The best approach, at least in my opinion, is to be aware of these trends and to plan around them rather than trying to time them perfectly. I think that's a fool's game. So what should you do? Control what you can. Start with the basics: improve your credit score, pay down debt, and save more so that you'll have a larger down payment. All of these steps, they're going to put you in a stronger financial position regardless where rates or prices go next.

It's also worth getting in touch with a mortgage broker, a financial planner, or a real estate agent. These professionals can offer you insights and help you assess your real buying power. And even if you're not ready to buy today, having a plan that these folks can help you put together, it's going to make you more prepared so that you're ready to jump in when the time is right.

So here's the takeaway: waiting for rates or home prices to perfectly align, it's risky, because the market is so unpredictable. Rather than holding off, take the steps now that will prepare you when the right opportunity presents itself. Control what you can and let the markets do their thing.

Hey, thanks for tuning in to We're Talking Money. If you found today's episode helpful, don't forget to like, subscribe, and hit that bell so you never miss one of our great episodes. And I hope you'll let me know in the comments below: are you planning to buy or sell, or are you going to wait it out? Let's talk about it, and I'll see you next time on We're Talking Money.