The median sale price of a home in the US jumped to $ 400,000 for the first time in May, the National Association of Brokers said on Tuesday. This news came a few days after the 30-year fixed-rate mortgage rate reached 5.78%, the highest since the Great Recession.
However, personal finance expert Suze Orman believes the housing market holds promise for US consumers, although she says “the tables have changed a bit”.
In a new interview with Yahoo Finance CEO Andy Serwer, Orman advised home buyers and tenants on how to navigate a harsh environment with both high mortgage rates and rental highs. Orman encourages tenants to be in the best possible financial position so that they can afford the inflated costs and possibly negotiate lower rents. And he advises home hunters to be realistic about whether they can afford higher mortgage rates, real estate taxes and insurance.
“Just look at the whole picture before you jump in,” he said. “I think it’s a little different than it was a year or two ago.” In general, however, Orman suggests that a home is still a wise investment.
“I do not think you will see the houses really shrinking. “You know, the truth is that real estate is always very good during a recession,” Orman told Yahoo Finance on June 20. You may see it grow by only 5% or 7% a year. “
However, many experts find signs that the housing market is cooling. Sales of former homes fell for a fourth straight month in May as interest rates rose. The forecast came a week before the Federal Reserve voted to raise short-term interest rates by 75 basis points on Wednesday, the sharpest increase since 1994.
Speaking to Yahoo Finance, Orman acknowledged that the housing market is changing. In particular, he said buyers will not rush to bid on a home immediately to outperform competing bids.
“You’re not going to see a house go on the market again, in my opinion, and get 30 bids above the asking price,” Orman said. “I think now you may see three, four offers – maybe you should reduce the price you ask for a bit.”
“It’s too late to repeat”
The housing market flourished last year. The profile of buyers and sellers of homes of the National Union REALTORS 2021 found that the typical house sold was on the market for only a week. With almost zero short-term interest rates and low 30-year fixed-rate mortgages (2.65%) in January 2021, prospective home buyers were lucky.
This fortune is starting to change, even for existing homeowners. The Fannie Mae Refinancing Application Level Index estimates that only 2% of mortgages have an incentive of 50+ basis points for refinancing as of Thursday.
“It’s too late to redefine. “You have to sit tight without a doubt,” Orman said.
Orman also warns home buyers to be wary of mortgages.
“If you can afford a house just because you make a mortgage with an adjustable interest rate and you do not know how they really work. “I would be very careful with them if I were you,” warns Orman.
Adjustable interest rate mortgages can start with lower payments than fixed rate mortgages, but you may experience a payment shock, negative amortization (when you owe more than you borrowed) or prepayment penalties if interest rates change.
Even if it turns out that you can not buy a house, tenants can take steps to reduce their monthly payments.
“An owner will really appreciate you if you keep the property. “You paint on your own, you make it even more valuable to them,” says Orman. It also encourages tenants to maintain a high FICO credit score so that landlords can be trusted to be paid.
Yaseen Shah is a writer on Yahoo Finance. Follow him on Twitter @ yaseennshah22
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