If you’re in the market for a new home, you may have noticed a jump in housing prices. That’s because home prices just hit an all-time high as of January.
Between the price increase and the Fed’s recent move to raise the prime rate, new homebuyers could face a tough road ahead. Here’s what you should know about rising home prices and how they’ll affect you.
Housing prices on the rise
CNBC reported the latest statistics from the S&P/Case-Shiller U.S. National Home Price Index. The index, which measured the nine U.S. census divisions, found:
- Housing prices in January 2017 were the highest they’ve been in 31 months.
- January saw a 5.9 percent increase in home prices compared to December’s 5.7 percent increase.
- Several cities in the U.S. saw the highest increase in housing prices of all time.
- Seattle, Portland, and Denver were hit the hardest, each hitting all-time highs for home prices.
Good for sellers, bad for buyers
If you’re debating putting your home on the market, these trends indicate now would be a good time to do so. Anyone selling their home right now stands to gain from the recent increase in housing prices.
If you’re looking for a home, you may need to revamp your financial situation to compensate for the higher housing prices. Here are some things you can do to improve your chances of buying a home you can comfortably afford:
1. Use your tax refund
Down payments are incredibly important in homebuying. You can be approved for a larger mortgage or make a bigger initial dent in the overall cost of your home if you have a large down payment. Either way, the increase in home prices means you might need to beef up your down payment savings.
Luckily, it’s tax time! If you’re getting a refund, go ahead and put that straight into your savings for a down payment.
2. Work on your credit score
Income isn’t the only thing that factors into your mortgage approval – your credit score will, too. That’s why it’s the perfect time to work on your credit score so you can be approved at the lowest interest rate possible.
And if you think small changes in the interest rate won’t make a difference, check out this chart from myFICO:
A small 1.59% difference in APR means saving almost $94,000 in interest over 30 years.
Here are tips on improving your credit in the next month. Key tips include: decreasing your credit utilization, increasing your credit limit (while not using any of that new limit), and making all of your payments on time.
3. Adjust your expectations or savings
The combination of the federal rate increase and rising home prices might mean adjusting your wish list or deciding to save more.
If you want to buy a home now, no matter what, revisit your list of must-haves and nice-to-haves. Consider moving items to the nice-to-have list if they are things that you’d like to have today but that could be improved upon over time (here’s looking at you, granite countertops).
If you’re a little bit more flexible, it might pay to hold out on buying a home. You can work to get the best credit score possible and a larger down payment. Then you might be able to buy without compromising on your wish list.
Don’t panic over housing prices
It’s always alarming when news about rising home price comes out. Remember that economic cycles are just that – cyclical.
Since a home can be a purchase that lasts you anywhere from five to 30 or more years, depending on your goals, it pays to keep an eye on the long game. Take a step back and ask if now is the best time for you to buy. If it is, follow some of the steps above to ensure that you get the best deal possible.
Finally, if you’re not sure what to do, consider talking to a financial planner. They can help you evaluate your budget and come up with a solid plan that will hopefully soon land you in a house of your own.
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