I wanted to buy a beach home. Did I miss the right time?


Q. I was planning to buy a vacation home this summer, and I was going to need a mortgage. I was waiting it out because prices are so high but now interest rates are rising. Should I wait for home prices to come down even though interest rates will be up? I don’t know how to decide. I don’t need the vacation home – I just want it.

— Buyer, maybe

A. It’s a big goal to have.

When it comes to a vacation home, you are in a good position to “want” rather than “need.”

Real estate values have increased substantially since the onset of the COVID pandemic, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.

However, he said, there have been recent signs that the residential real estate market is starting to cool down.

In August, real estate brokerage firm Redfin reported nearly 63,000 home purchase agreements in July, or 16.1% of homes, that went under contract that month were called off, Papetti said. This is the highest rate in over two years and the third highest percentage on record since 2017, he said.

It’s an indication that the housing market has slowed sharply as higher mortgage rates and prices make housing less affordable.

Home sales fell 5.9% in July and 20.2% from the year prior, the sixth straight month of decline, according to analysis from the National Association of Realtors (NAR), he noted, and Redfin reports that in this current environment, buyers have been much more likely to ask for contract contingencies that allow them to back out without penalties, in addition to reductions in price and request for repairs. If sellers refuse to meet these requests, buyers are increasingly calling off deals to look for other options, he said.

Last week, Standard & Poor’s released its Case-Shiller National Home Price Index, which tracks price growth in June, revealed signs the housing market is cooling off as the annual gain of national home prices through June was 18.0%, down from 19.9% in May, Papetti said.

Also last week, mortgage originator Freddie Mac released its National House Price Index covering the month of June, which reflected an increase of only 0.1%. This index, which tracks the prices of single-family homes, rose 1.4% in May, having decelerated for four consecutive months from a record 1.9% increase in February, he said.

“The cooldown in the U.S. housing market, as evidenced by recent declines in home sales and housing starts, has yet to translate into a meaningful slowdown in price growth,” Papetti said. “Home prices have continued to surge to record levels throughout 2022, despite the effect of rising mortgage rates and diminishing affordability.”

Another factor when considering purchasing a home now is if the U.S. is in or will enter a recession, as that can have a direct impact on the price of homes, he said.

Now to address your question.

The housing market, specifically in New Jersey, although cooling down, is still strong mostly due to demand outpacing supply, Papetti said, noting that a recent discussion he had with a realtor associate indicated they are seeing more homes listed in the past month which may have an impact on price. He also mentioned that there are fewer bidding wars for homes listed for sale, Papetti said.

“Based on the outlook for a slowing economy with a possible recession, unless you found your ideal vacation home that you absolutely fell in love with, I would wait to purchase at this time,” he said. “In addition, some economists feel that with the economy slowing with the possibility of a recession, mortgage rates should be lower a year from now which could also benefit you if you wait.”

Email your questions to Ask@NJMoneyHelp.com.

Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.





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2022-09-09 02:30:00

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