Millennials are in peak nesting mode. We want the outdoor space to be lacking in many apartments, or to evoke the room that a starter house doesn’t offer. Not just a minor problem.
(Hints roughly at everything.)
According to the National Association of Realtors, the median current home sale price of American homes in August was $389,500. This is an increase of 7.7% from August 2021. According to Freddie Mac, the average interest rate for a 30-year fixed-rate mortgage is above 6% as of September 15 this year. Compare this to the average rate of 2.86% just a year ago — that’s an increase of 110%.
When an open house feels like a cage match it can be difficult to compete. That’s enough to force anyone into renting for a while. “We are seeing that people who were thinking about buying a home are no longer interested,” says Natalie Slag, a certified financial planner and founding partner of Rochester, Minnesota-based Fuse Financial Planning. “People are unwilling to make big financial moves when there seems to be uncertainty.”
Although you may feel stuck right now, you don’t have to be there forever. Here’s what to do in the meantime.
Re-evaluate your current situation
By slowing down your house hunt, you’ve given yourself the gift of extra time. You can reevaluate what is realistic for you. In the next year or two, your life could change a lot, which means your list of must-haves for your home may need some editing.
When Jason Fletcher was looking to buy his first home in Orange County, California in 2019, he was single. At the time, he didn’t find The One in terms of real estate, but it didn’t take long to meet his now-wife. They are currently expecting their second child and are still hoping to swap their rental for their home, which is quite different from what Fletcher discovered three years ago.
However, their search is waning. “I would say right now, at least in our region, we haven’t seen a whole lot of increase in inventory,” he says. “It indicates to me that people are comfortable with their interest rates and they are not selling.”
Amanda Asti moved to San Francisco with her husband seven years ago. He considered buying a house after living in the city for two years, but withdrew after finding nothing in his price range at the time. Now, they have advanced in their career and are ready to start the search again. “Even with that, we’ve become very disappointed,” she says.
They are ready to move away from the city – and even to leave the state in search of more space for the money. “We have a huge exodus of friends to Portland. A whole bunch of friends have gone to Denver,” she says. “It is more and more likely that another city will be our best option.”
Be an even more attractive buyer
If your budget and mortgage pre-approval were up this time around, bolster your finances over the next few months so you’re in a stronger position later.
One place to start is with discretionary spending. If you can make less, and possibly increase your income with a promotion, job or freelance work, you can add to your savings and be prepared to make a big down payment. You may also be able to increase your overall budget for a house. Fletcher and his wife cut back on buying new clothes and are keeping their paid-up cars longer to avoid car loans. “At this point, we’re trying to make more money and get promotions,” he says.
Paying off existing loans can also help, as it will lower your debt-to-income ratio.
A high credit score can help you qualify for better mortgage terms, in hopes that you can get as low an interest rate as possible. If you already have excellent credit, keep it there by paying your bills on time every month. Late payments can damage your credit, and you’ve already worked hard to get where you are. If your credit score is low, paying on time can still help you, as well as limiting other loans or credit cards you apply for in the months before applying for a mortgage.
Adjust your interest rate expectations
Sometimes your life plans don’t suit economic circumstances, so you may not be able to wait indefinitely for interest rates to go down (assuming they will, which is never guaranteed). In that case, you’ll have to make higher monthly payments, and if interest rates go down in the future, you can refinance. You may need to make concessions to accommodate more expensive loans, such as reducing your overall budget or expanding your search to a larger area.
Phil Lawson, a real estate agent in Richmond, Virginia, notes that even now, interest rates are historically low. When he bought his first house 20 years ago, he paid 7.6%.
“It’s a stupid cliche, and I’ve said it for years,” he says. “Marry the house but date the rate.”
This article was written by NerdWallet and originally published by The Associated Press.