If you’re looking to buy a home, 2022 probably isn’t a great year for you. Home prices have been soaring for the past two years, since a few months into the pandemic. This was driven in part by low mortgage rates, which made it possible for people to afford large mortgages. However, with interest rates on the rise, affording a mortgage is getting more difficult.
In fact, mortgage rates are now higher than they have been since mid-2019. And yet, housing prices are still rising and experts think they will continue to rise for the foreseeable future. With both prices and mortgage rates high, now might not seem like a good time to buy a home.
The problem is that both only seem likely to rise, and for many potential homeowners it may be a question of now or never. Waiting a year could leave you further than ever from owning a home.
But even if you want to buy a home in 2022, can you afford to? Here are some of the reasons buying a new home should still be a consideration.
Insurance remains affordable
The good news is that insurance premiums are not rising at the same rate as the cost of housing. Insurance for homeowners is not based on what you pay for your home. It is rather based on factors including construction costs, replacement costs, and risk level, among others.
That said, if you are thinking of buying in an area which has a high risk of a climate-related event like flooding or wildfire, you may struggle to get insurance, and then only at a very high price provided by the government. This is a part of a push to discourage people from buying in areas that will not be viable within the next few years.
Rent is high
For many Americans, affordability is relative. They do not want to buy a home when prices are high as they would rather stick with a cheaper alternative. The problem is that rent is soaring as well. The housing affordability crisis contributes to this, as well as the fact that landlords are trying to make up ground they may have lost during barren pandemic months.
As a potential homeowner, you may be paying more for rent than you would on a mortgage. The difference is that you will never own the home you are renting. Therefore, if you are able to afford a down payment, buying a home may be the most reasonable option.
If you can afford a big down payment, you can lower your monthly mortgage payments significantly. Instead of spending a large part of your budget paying someone else’s mortgage, you will spend less on your own.
Control your utility usage
Another reason purchasing a home may be more affordable than renting is that you control your utility usage. When renting, you may be paying a fixed price as part of your lease that your landlord allocates to utilities. This is regardless of how much electricity and water you use over the month. They will price it so as to afford it even if you are wasteful.
When you own a home, you can take steps to lower your utility bills, such as turning off lights, disconnecting electricity vamps, and making sure no faucets ever leak. You can save a lot on utilities if you are careful with your usage.
If you’re willing to hustle to make some ‘passive’ income, you can use your home to earn money. You can do this by renting out a cottage or spare room, whether on a long-term basis or through an app like Airbnb. This can help offset the cost of your mortgage significantly. However, this is not something you can rely on immediately, as it might take a while to prepare a space and find potential tenants.
It is difficult to afford a new home in 2022, with prices high and mortgage rates rising. But that does not mean this is a bad time to buy a home. Since prices are likely to continue their upward trend and the alternative – renting – has become exorbitant, putting your funds towards buying a home may be the best option.