Here we are, smack dab in the middle of 2024, and the housing market continues to be a wild ride. Buyers better stay buckled up because this rollercoaster keeps serving up some fresh twists and turns. While mortgage rates remain above 7%, and available homes for sale down by nearly 20% compared to last year, savvy buyers who come prepared can find some pretty sweet deals amidst the chaos.
Whether you’re a first-time buyer frustrated by limited options or an existing homeowner considering refinancing, understanding these market conditions can turn confusion into confidence and get you the keys to your new home. And that’s exactly what this article is all about. We’ll break down the four things every homebuyer needs to know about the 2024 housing market so you can ride into your new home like a boss.
Understand the Effects of Current Interest Rates and 2024 Housing Market Trends
As of June 2024, the average 30-year fixed mortgage rate is 6.95%. While this is an improvement from last year, when rates were almost 8%, they have not returned to the 3% average seen in early 2022. In a healthy economy, mortgage rates typically range between 4-5%, so while we may not see rates as low as 3% again, the current rates still present a significant challenge for homebuyers.
Higher interest rates directly impact the affordability of home loans, making it more expensive for buyers to finance their purchases. For instance, with a 3.5% interest rate on a $300,000 mortgage, the monthly payment would be approximately $1,347 (excluding taxes and insurance). However, at a 6.95% interest rate, the same mortgage would cost around $1,988 per month, an increase of over $600.
This increase in monthly payments can strain buyers’ budgets, making it more challenging to qualify for loans and reducing overall purchasing power. As a result, many potential homeowners may need to adjust their expectations and refinance once conditions improve.
One helpful strategy to ease the effects of higher interest rates is to increase the down payment. A larger down payment reduces the money you need to borrow, significantly lowering your monthly mortgage payments.
To illustrate, instead of putting down 3% on a $300,000 home ($9,000), increasing your down payment to 20% ($60,000) reduces the loan amount to $240,000, meaning you pay less interest over the life of the loan.
Additionally, lenders often offer better interest rates to buyers who make larger down payments, as this reduces the lender’s risk. Moreover, putting down at least 20% can wipe out the need for private mortgage insurance (PMI), saving you hundreds of dollars each month.
Improve Your Credit Score and Financial Health
In 2024, having a good credit score and strong financial health is more crucial than ever for prospective homebuyers. With the economy facing mass layoffs, inflation, rising interest rates, and persistent supply chain disruptions, lenders are becoming increasingly stringent in their requirements.
With the 2024 housing market’s increased volatility, lenders are examining applicants more closely to mitigate risks. A high credit score can give you an advantage, signaling you are a reliable borrower. While many lenders previously allowed conventional loans with a 620 credit score, some are raising the minimum requirement to 660.
Increasing your credit score before applying for a mortgage can impact the type of loan you’re approved for and the interest rate you receive. Focus on paying down existing debt, such as credit cards, car loans, and student loans. Avoid opening new credit accounts or making large purchases that can lead to hard inquiries and potentially lower your score. Most importantly, hold off on buying a new car if you plan to buy a house soon. Lastly, review your credit report for mistakes and dispute any inaccuracies to help boost your score.
Beyond your credit score, overall financial health plays a big role. Lenders look at your income stability and debt-to-income ratio (DTI), ideally below 43%. A lower DTI indicates a good financial balance, making you a less risky borrower. Ensuring your income is stable and your debts are well-managed will significantly improve your chances of securing favorable mortgage terms.
Beat Limited Housing Market Inventory and Win the Homebuying Competition
The limited inventory has a substantial impact on home prices and buyer competition. With fewer homes available, prices have surged, making it a seller’s market. Buyers often find themselves in bidding wars, inflating prices even further.
According to recent data by the National Association of REALTOR®, home prices have increased by an average of 10% year-over-year, adding financial strain to prospective buyers. This competitive housing market can be discouraging, especially for first-time buyers who don’t have the equity from another home to keep up with aggressive bids from repeat buyers.
Expanding your search criteria can help you find more available homes. Look into different neighborhoods and consider fixer-uppers. Being open to a slightly longer commute or a house that needs updates can create more options within your budget.
The FHA 203(k) loan allows you to finance both the purchase price and the cost of renovations in a single mortgage. This option can be ideal for buying a home that needs significant repairs or upgrades, allowing you to create your dream home while potentially saving money compared to purchasing a move-in-ready property. Also, explore options like VA loans if you’re a veteran, USDA loans for rural properties, or ask about specific programs for first-time buyers.
Embrace Changes in Housing Regulations and Tax Laws
Three new tax incentives have been introduced to encourage energy-efficient home improvements and promote sustainability. Homeowners can benefit from the Energy Efficient Home Improvement Credit, which allows you to claim 30% of eligible upgrades, up to $3,200 annually, including $1,200 for general energy improvements and $2,000 for qualified heat pumps and biomass stoves.
Additionally, the Residential Clean Energy Credit provides a 30% tax credit for installing renewable energy systems like solar and wind power, valid through 2032, with reduced percentages for later years.
On the other hand, updated property tax assessments can increase ownership costs, especially in areas where property values have risen. You should research local property tax rates and understand how recent assessments may affect your annual expenses. Knowing these potential costs will help you make better decisions about your budget and long-term affordability.
How Can You Beat the Housing Market in 2024?
The key is to stay flexible and do your homework. Don’t be afraid to explore new neighborhoods, consider a fixer-upper, or take advantage of those sweet government perks. Keep an open mind, and you might stumble upon the perfect place to call home.
At MARQ Mortgage, we understand these challenges and are here to help. We offer same-day pre-approvals, competitive rates, and various loan options tailored to get you the keys to your new home. Plus, our team will walk you through every step of the process, keeping you and your real estate agent informed along the way.
Ready to conquer the housing market and make your homeownership dreams a reality? Schedule a free consultation to get started.
