Intentional Voice

The Challenge of Our Current Housing Market (December 2023)

Financial Freedom

If you’ve considered buying a home in the past year, you’ve undoubtedly discovered that the housing market is in a less-than-ideal state, to put it mildly. Prices are up, interest rates are high, and many families are being priced out of the market for homes they might have easily purchased just a few years ago.

What happened? And, more importantly, what guidance can we offer for people in the difficult position of planning their finances over the coming months?

Home Affordability is Getting Worse

Between 2009 to 2021, homebuyers enjoyed low interest rates even as home prices crept upward. With the Fed’s recent rate hikes, that scenario has changed – with dramatic results.

A home that cost $300,000 in 2020 might now be on the market for $400,000 or more, and mortgage rates have more than doubled in the past three years. Monthly mortgage payments have doubled, but median income has only risen by about 10%, creating a significant gap in affordability.

Interest rates are one explanation for the housing situation, but they’re not the only factor. At other times throughout history, rising interest rates have been coupled with an increased supply of housing that led to an overall cooling of prices.

That’s what we saw after the 2008 crisis: foreclosures and new construction created enough inventory to drive prices down. We’re not seeing that happening yet.

The housing inventory in the nation, has been in steady decline, with more young people coming into home ownership, more investment properties being converted to rentals, and fewer Baby Boomers willing to give up their homes without another to move into.

This means, according to numbers from FRED (Federal Reserve Economic Data), that real estate inventory is half of what we’d consider normal. With low supply, growing demand, and interest rates pricing people out of loans, it’s no wonder prices are staying high.

Don’t Sacrifice Your Financial Security…

Buying a home is a long-term commitment. It takes 5 to 7 years for a home’s value to rise enough to offset the transaction costs of selling it. During that time, you’ll need to handle its maintenance and upkeep costs. You’ll also be responsible for many expenses renters don’t face, from repairs to insurance and property taxes.

It’s always worth waiting for the right opportunity to buy a home you’ll be happy with rather than settling for something you don’t like or buying something you cannot truly afford.

…But Don’t Give Up Hope, Either

One of the greatest risks during a housing price boom is that buyers will stretch beyond their financial limits and take on too much debt. Proverbs 22:7 reminds us The rich rule over the poor, and the borrower is slave to the lender. Buying a home usually involves the largest debt we will take in our lives, so there is no better time to head this warning about debt. Generally speaking, a home’s purchase price should be equal to no more than three years of your household income. Your total debt payments should make up less than 45% of your gross monthly income. When your debt-to-income ratio skews higher, you risk not being able to save for retirement or answer God’s prompting to joyfully give to neighbors in need. And, unfortunately, the current market means that many would-be homeowners are unable to buy their first homes right now.

However, “right now” doesn’t mean “ever.”

Construction companies are working at record speeds to build new homes to increase the real estate inventory. Developers and city planners are working to find more room for housing in more crowded urban areas. And as efforts to combat inflation and raise wages across the country continue, we may begin to see some relief.

It’s hard to predict what the immediate future of real estate and the economy might be. But it’s safe to say the situation will not be dire forever. And in the meantime, you have a chance to review your personal finances and begin making some changes that will put you in a better position.

Start by checking your heart and the motivation for buying your first home or upgrading to a nicer property. Are you making the best decision for your family, or are you coveting the houses you see on Zillow? There is a good reason the ten commandments included You shall not covet your neighbor’s house… (Exodus 20:17). Our desire to keep up with the Joneses can shift money into the number one position in our hearts.

If this isn’t the right time to commit to a mortgage, it may be worth focusing on other aspects of your finances. Consider taking the year to pay down credit card debt, vehicle payments, and student loans. You could also look for ways to boost your income and trim expenses while watching the housing market for the right opportunity.

A Certified Kingdom Advisor® can help you with understanding your current finances, saving money, and creating a plan to put you in the best position to buy when the real estate market improves, all while honoring your values and God’s plan for your personal finances.

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John Moore Associates, an investment adviser with the U.S. Securities and Exchange Commission is not affiliated with Family Life Radio. Any opinions are those of the author and not necessarily those of John Moore Associates or Family Life Radio.