Never before have we seen a housing market quite like this one. Housing supply and vacancy rates have fallen to record lows. The United States is somewhere between 1.5-5 million units short as compared to decades prior, according to recent research from Morgan Stanley. Yet, interest and rental rates continue to rise, suggesting that fewer people will be able to buy, and rents will continue to increase.
All of this means it’s even more important to be a better borrower.
So what does that look like?
Decide if you want to buy or rent
Before we get down to brass tacks, let’s talk about the options you have. True: the lending market is not easy right now, but it’s not completely impractical if you play your cards right.
If you’re not ready to grin and bear the lending landscape, you might compromise on the rental. The stunning demand we’re seeing right now predominantly focuses on single-family homes, meaning that you have more choice with a rental situation. If you move into a rental below your means now, you can save the extra money and get all your other financial ducks in a row for a future long-term buy. Consider looking at neighborhoods outside of your first choice.
If you’re ready to take the plunge into the world of borrowing, read on.
Accept this is happening and put your best foot forward
The Stockdale Paradox teaches us that if we want to be successful, we have to first acknowledge the reality of the situation. According to the same research out of Morgan Stanley, “The rapid rise in mortgage rates over the past several months should keep inventory tight as current homeowners have more incentive to stay locked into their low rates.” Further, the study shows, “the strength of mortgage underwriting over the past decade has resulted in a backdrop of healthy-credit homeowners who won’t be forced to sell homes into depressed bids.” So prospective buyers shouldn’t hold their breath thinking that higher interest rates will eventually lead to more foreclosures or rundown properties on the market.
Examine your budget
Any time you’re buying a home, budget matters, but it matters even more when you’re faced with the prospect of having to borrow more than you expected. If seeing the word “budget” makes you cringe, talk to a trusted advisor or mortgage lender about your financial position, so you know what you can truly afford. You’ll want to know what your savings can spare and if you have any liquidity to purchase a home. Do you have access to lower down payments? If you don’t want to part with liquidity, do you have any securities that you can borrow against?
Assess your existing debt
Know what kind of debt you have and how much. Get intimate with your credit score. Understand its value and what factors (that you can control) affect it.
Educate yourself on the business of borrowing
Set yourself up for a relatively painless buying process by arming yourself to the teeth with information. Even if this is not your first time buying, you can elevate your awareness and consequently your purchasing power. Non-traditional environments call for non-traditional solutions. And this market is a truly wild one.
