Millennials and Gen Z first-time homebuyers, in particular, may have to continue renting for a longer length of time than their parents and grandparents did. Some consumers are delaying their searches due to the housing market's ongoing tightness. However, there's also the concern that people are unable to get a mortgage because of bad credit.
According to FinanceBuzz research, although one-third of respondents believe having a home would enhance their quality of life, 21% admit not having enough credit to get approved for a mortgage.
What Prospective Buyers Can Expect
Even though mortgage rates are getting higher and the economy is being pulled in all directions by things like rising gas prices and the war in Ukraine, experts predict that the housing market will continue to move toward more balance.
For one thing, higher mortgage rates are already bringing down housing prices. In July, the median price for an existing home in the US dropped from a record high of $413,800 to $403,800. But since they have gone up so much in the past few years, it is expected that it will probably take a long time for them to go down before they are affordable again.
According to a Goldman Sachs analysis published in August, by the end of 2022, the US housing market will be less active. The investment bank forecasts a 22% decline in new home sales, a 17% decline in existing home sales, and an 8.9% decline in the housing GDP. It projects that in 2023, the housing GDP will decline by another 9.2%, new home sales will fall by another 8%, and sales of existing homes will fall by another 14%.
Michael R. Acosta, a certified financial planner with seven years of experience, asserts that the housing market is unquestionably changing from a sellers' market to a buyers' market as a result of homes staying on the market longer than during the summer. “It's a great time to buy for first-time owners with ample down payments or enough discretionary cash flow to cover the mortgage of a current home price despite current prices,” Acosta says.
On the flip side, first-time homebuyers who lack the funds for a down payment may focus on improving their financial well-being. In the meantime, he says, they can start preparing to buy a home by getting more cash on hand, improving their credit scores, and focusing on their overall budget controls.
Ways to Repair Credit Score
If you have lower credit scores because of a lack of credit history or too high of credit usage compared to currently available credit limits, Acosta suggests focusing on using your credit card(s) for budgeted items only, especially if you battle with poor spending habits.
Utilizing a credit card for necessities like groceries, gas for a car, and subscriptions makes it simple to budget and pay the card off once a week or once a month.
“The idea here is that they're able to take advantage of the credit card companies by never carrying a balance and reaping the rewards of positive credit usage marks and cash back or miles rewards,” says Acosta.
Secondly, according to Acosta, if outstanding credit balances are an issue, you should stop using credit cards altogether and focus on improving the debt situation.
You may consider debt consolidation or balance transfers to a 0% APR credit card to allow you to make more progress toward eliminating the debt. According to Acosta, once the debt is manageable, you can begin using the credit card(s) for the previously mentioned budgeted items.
Additionally, asking your credit card provider to increase your credit limit is another action that could be beneficial. Many issuers will increase your limit if you've used your card for a while and have been reliable in making on-time payments. This increases the overall credit limit and decreases the credit utilization rate.
Dealing With Inflation for Prospective Buyers
Because of rising housing prices, decreased disposable income, and higher interest rates, money is significantly more expensive to borrow for anyone looking for a mortgage. Burke Files, President of Financial Examinations & Evaluations, Inc., advises prospective homebuyers who dwell in an area where the housing market is cooling to locate an inexpensive place to rent and “save like hell” until the market stabilizes and then buy in the next slump.
He asserts that as much as the housing market may cool off, some housing markets show no signs of cooling off. In those locations, Burke advises buying a home, if you can afford to, with an adjustable-rate mortgage (ARM). “Inflation is cooling off, but not as fast as one would want,” Burke warns.
“You do not want to be locked into a high-rate mortgage when rates are high. When rates drop, one can refinance.” He adds, “the greatest variable any household has is its expenses.” Burke implies that working on a tight budget can move one closer to the goal of owning a home. “Simple things, such as brewing your coffee, Burke says, “can save $1,000 per year,”
First-time homebuyers may also consider government grants that don't require any sort of repayment. The promise of financial security and stability that comes with home ownership is no idle boast. In the long term, you'll accumulate equity, and in the short term, you'll save money by not paying rent and can take advantage of tax benefits.
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This article was produced and syndicated by Wealth of Geeks.
Amaka Chukwuma is a freelance content writer with a BA in linguistics. As a result of her insatiable curiosity, she writes in various B2C and B2B niches. Her favorite subject matter, however, is in the financial, health, and technological niches. She has contributed to publications like ButtonwoodTree and FinanceBuzz in the past. In addition to ghostwriting for brands like Welovenocode, Noah and Zoey, and Ohcleo, amongst others. You can connect with her on Linkedin and Twitter.