Low mortgage rates have rekindled enthusiasm in homeownership, particularly among young people who are weary of watching their rent bills grow year after year and like the concept of having equity—an ownership stake—in their house.
A home may be a valued asset and a springboard to a more secure financial future. However, first-time buyers may be surprised by the financial toll homeownership may have on their finances.
The actual cost of house ownership includes a slew of hidden costs in addition to monthly mortgage payments. The first three hidden expenses are inevitable and habitual. The remainder are sporadic and unexpected, which adds to the stress. Preparation is half the fight.
According to Freddie Mac’s Economic and Housing Research (EHR) Group’s quarterly projection, the fast rise in house prices may be exhausting prospective purchasers. The homeowners know the home prices very well.
According to analysts, recent signs indicate that demand for house purchase mortgage applications is weakening and that the pace of sales, although still higher than it was before the pandemic, has slowed significantly since the start of the year and has been declining for the past four months. As a result, the EHR Group forecasts that house sales would fall to 6.9 million in 2021, down from 7.6 million in the fourth quarter of 2020 and 7.2 million in the first quarter of 2021.
Additionally, they anticipate house prices will decrease from the 17% year-over-year increases recorded in the May edition of Freddie Mac’s House Price Index (FMHPI), the index’s fastest growth rate since 1975. According to economist Robert Shiller, inflation-adjusted prices are at their highest level since 1890. This year, home prices will increase by an average of 12.1 percent, before slowing to 5.3 percent in 2022.
Home purchase originations will increase from $1.8 trillion this year to $1.9 trillion next year while refinancing activity will decline from $2.2 trillion in 2021 to $713 billion in 2022. By next year, total originations will fall from $3.9 trillion to $2.6 trillion.
Other sectors of the economy, the organization anticipates, will continue to improve. While non-farm payrolls are currently 6.8 million jobs down than in February 2020, there are 9.2 million job vacancies, a record high. According to consensus projections, real GDP growth will exceed 6% in 2021, which would help bridge the huge gap between present economic activity and potential production.
Consumer price inflation accelerated in May, with the Consumer Price Index for all goods increasing 5.0 percent on an annual basis and the index for all items except food and energy increasing 3.8 percent.
May’s Personal Consumption Expenditures (PCE) price index showed an annual increase of 3.9 percent, while the core PCE price index, which excludes food and energy and is the Federal Reserve’s preferred gauge of price inflation, showed annual growth of 3.4 percent. According to the article, many analysts believe the rise in inflation is temporary and that the figures will go down to about 2% over the following two years.
The bond market seems to have discounted these inflation estimates, with long-term interest rates lately declining. The average weekly rate on a 30-year fixed-rate mortgage in the United States was 2.9 percent for the week ending July 8, 2021. While Freddie Mac’s economists anticipate a rate rise later this year, it will be gradual. 30-year rates will be at 3.4 percent by the end of the year, increasing to 3.8 percent in the fourth quarter of 2022.