US Home Prices Are Falling: Is It A Good Time To Buy Property?

Home prices in the US are dropping for the first time in a decade. Ed Pinto, the Director of the Housing Center of the American Enterprise Institute said that the “turn finally happened.” Housing prices plunged in 77% of metropolitan areas in America, and high mortgage rates are the primary reason for the price drops. Since the last real estate crash which ended in 2012, prices of homes surged and was marked by a 2-year buying frenzy during the pandemic. Now, values are falling as the Federal Reserve fights to tame inflation influencing mortgage rates and consequently, deterring buyers from investing in a home and causing sales to tumble.

Perks and Pitfalls of Owning a Home

Purchasing your own house is a milestone in life. Property ownership means that you are in possession and control of real estate. It is also a legal right. The advantages of owning your own house are many. First, you are building and investing in your own equity instead of paying a monthly rent. Second, you are building and improving a credit reputation for as long as you keep your regular mortgage payments. Third, you have greater privacy and control of your property. There is also no need to ask permission from anyone if you want to renovate a living space or even drill holes on the walls to hang a picture frame.

However, there are downsides to owning real estate. One of the major reasons why not everyone can climb up the property ladder is the high upfront costs. You will need to put up 20% of the cost as down payment for a home purchase, in addition to closing costs which is 3-6% of the total loan, and inspection expenses. There are options, too for those who cannot afford the hefty down payment such as Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) loans which have lower down payment requirements. Moreover, you must maintain and repair the property and pay property taxes, utilities, homeowners insurance, and other fees.

Homeowner Association (HOA) Fees

If you happen to purchase a house, townhouse, apartment, or condominium that is part of a homeowner's association, you are obliged to pay HOA fees to cover the costs of amenities (security system, gym, pool, or clubhouse) and upkeep of common areas such as lighting, sewage, or lawn services. Your HOA may even use the services of a property management company to help in the day-to-day operations, enforcement of rules, and implementation of policies. As such, HOA management fees are paid as well by the association. Hence, the average HOA dues depend on the needs of communities, location, and services covered.

The fee can be used in various ways. Pest control in condo or townhouse communities may be offered as lawn care on shared spaces. Furthermore, a portion of the HOA fees may be put aside as reserve funds that can be used for emergencies or unexpected situations such as replacement of broken windows or equipment in common areas. Repairs and maintenance on communal spaces will also be financed by HOA funds. However, failure to pay HOA fees on time will attract late fees or interest which can accrue over time. Thus, it is important to know and understand the rules regarding late or delinquent payments to avoid surprises or serious issues such as foreclosures. On the upside, living in a neighborhood managed by a HOA offers several advantages such as access to amenities and security. Above all, it protects and even raises property value because the HOA helps keep the locality desirable.

Market Outlook

A major factor in deciding whether to buy a home or not is the current mortgage rate. A higher rate decreases your purchasing power because home loans are more expensive. To illustrate, a house priced at $350,000 inclusive of estimated property taxes and home insurance will cost you $1,436.8 a month with a 3% mortgage rate. At the current rate of 6.6%, the same house and corresponding loan will cost you $2,071 which is an increase of $634.2. Hence, it makes a difference to shop around for the best rate on offer and to ensure that you can afford the monthly payments.

Not everything looks gloomy though. Although competition is still strong, it is not that brutal. The supply of homes has increased in July, up 4.8% from the previous month according to the National Association of Realtors (NAR). Sellers are also getting fewer offers on average which implies that there are fewer and less intense bidding wars. In addition, a smaller share of homes sold above their list price in July compared to June. Nonetheless, if you intend to buy a house, you should move quickly to find reasonably priced and well-maintained properties.

The decision to buy property should always depend on your ability to pay the monthly dues, down payment, insurance, and maintenance while still having enough money for emergencies. Right now, mortgage rates are high, but you can crunch the numbers to see if a lower-priced home makes sense in the long run.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes