Tough going for home buyers
- B.J. Yoder: Young Money
- July 8, 2022
- 589
Everyone needs somewhere to live. It’s that simple. Food, shelter and water are the three basic necessities for us.
With everything that has been going on, I feel bad for young people who are getting out in the world, especially those getting married and who want to buy a house and call it their own. I feel bad because since about 2018 the market in Holmes County, at least, has been white hot. I bought my first house back in 2018 and offered over asking, and I remember a gentleman older than me telling me how he was in disbelief because he had never heard of people offering over asking, but it has become the norm for the last four years. There is a new problem young people — and everyone else — are facing when buying a home — the interest rates.
If you have been watching, the interest rates for a 30-year fixed loan were under 3% as of last year. I had refinanced my house last year to 2.75% for a 15-year loan, but then I moved and bought another house on a 30-year loan with a 3.1%. That seems to be rock bottom, especially with people who weathered through the ‘70s and ‘80s at 10%-20% interest. With that being said, we can look at where interest rates are hovering now at 5.75% and expect to maybe make a couple more hikes by year end.
I was talking with a friend who bought his house around the same time, and we both concluded we bought at the right time, even though every expert has said housing prices are at their highest ever. I quickly did the math on my mortgage payment, and it made me sick. At 3.1%, my mortgage payment is $811 per month without taxes, insurance and such.
Then I looked at what a local bank’s rate was, and it was 5.75% currently. If I would have bought the same house six months later on a 30-year loan, I would be paying $1,109. The same house would be costing $298 more a month or $3,576 more a year. This is sad.
It seems like it is getting harder and harder for first-time homeowners to buy their first home. I had brought up the interest rates in the ‘80s, but houses also were much more affordable back then in ratio to the salaries people were being paid. I had been talking to someone who has been looking for a house for months with no luck, and now that interest rates have been raised, they seemed defeated. “Defeated” seems to be the common feeling about buying a house lately.
So what’s the solution? Truthfully, I can’t think of many good ones. I keep telling people to just sock away as much money as possible, but that can only do so much. I went against most of my beliefs when I took out a 30-year loan to buy my house, but one thing I would not recommend is putting down less than 20%. With interest rates climbing, you will be paying more than six months ago, but to pay PMI — private mortgage insurance, insurance that protects the bank in case you stop making payments on the loan.
I know it only costs roughly .2%-2%, but that’s money that could be used elsewhere. Make it a point to put 20% down, no matter what the cost or the interest is.
I know this was a lot of numbers and percentages, but it is the world we are living in, and if you’re in the market for a new house and can’t cash it off, these seem all too familiar. Sadly, new home buyers must make the best of the situation they’re given, and it’s not great right now.
Holmes County native BJ Yoder is an insurance agent by day and a finance enthusiast by night. This column is for informational purposes only. He can be emailed at benjamin.john.yoder@gmail.com.