Buying A Home This Year?

Buying a home this year? As we kick off the new year, many families have made resolutions to enter the housing market in 2019. Are you thinking of finally ditching your landlord? Considering buying your first home or selling your starter house to move into your forever home? There are two pieces of the real estate puzzle you need to watch carefully: interest rates & inventory.

Interest Rates

When buying a home, mortgage interest rates have been volatile. On the rise for much of 2018, they made a welcome reversal at the end of the year. According to Freddie Mac’s latest Primary Mortgage Market Survey, rates climbed to 4.94% in November. Last week, the 30-year fixed rate mortgage fell to 4.62%. Despite the recent drop, interest rates are projected to reach 5% in 2019.

The interest rate you secure when buying a home greatly impacts your monthly housing costs. You need to keep an eye on how it also impacts your purchasing power.

Purchasing power is the amount of home you can afford to buy for the budget you can afford to spend. As rates increase, the price of the house you can afford to buy will decrease.

The chart below shows the impact that rising interest rates. This reflects a planned purchase of a $400,000 home while keeping your principal and interest payments between $2,020-$2,050 a month.

Excited About Buying A Home This Year? Here's What to Watch | Keeping Current Matters

With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, $10,000).


A ‘normal’ real estate market requires there to be a 6-month supply of homes for sale in order for prices to increase only with inflation. According to the National Association of Realtors (NAR), listing inventory is currently at a 3.9-month supply (still well below the 6-months needed), which has put upward pressure on home prices. Home prices have increased year-over-year for the last 81 straight months.

The inventory of homes for sale in the real estate market had been on a steady decline and experienced year-over-year drops for 36 straight months (from July 2015 to May 2018), but we are starting to see a shift in inventory over the last six months.

The chart below shows the change in housing supply over the last 12 months compared to the previous 12 months. As you can see, since June, inventory levels have started to increase as compared to the same time last year.

Excited About Buying A Home This Year? Here's What to Watch | Keeping Current Matters

This is a trend to watch as we move further into the new year. If we continue to see an increase in homes for sale, we could start moving further away from a seller’s market and closer to a normal market.

Bottom Line

If you are planning to enter the housing market, either as a buyer or a seller, make sure that you have an experienced local agent who can help you navigate the changes in mortgage interest rates and inventory.
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