Is it smarter to rent or buy in the 2023 Louisville market?
Historically, the decision to rent or buy has to do with your place in life. It was fairly simple:
Do you view your job or location as temporary? Rent.
Do you wish to start investing or put down roots? Buy.
The current state of the economy makes this much more complicated. CNBC tells us that there is a large market of people (primarily millennials) who are ready to hop on the property ladder but are waiting until the market cools. They are scared that if they buy a house now they’ll pay top of the market prices and won’t see a return on investment in the future. Yet prices continue to rise.
When will the market reach its peak? It’s difficult to know for certain.
The new year is a great time to analyze real estate trends. We can look back at all the changes we’ve seen in the past year and make educated predictions about our future.
Let’s break it down.
The current climate of renting in Kentucky:
Rental prices have been a headlining subject this year. This isn’t anything new. Rental costs have been steadily increasing since 2017 but 2021-2022 saw the biggest jump in years.
A major con of renting is that your landlord has the option to increase rent every time your lease expires. Most Louisville landlords have been taking advantage of that privilege. When you buy a home, your monthly payment is locked down (except for any fluctuating property tax rates). This can be a major relief especially if your rent continues to rise but your salary hasn’t adjusted for inflation.
Housing market predictions for 2023:
Buying a house right now isn’t easy either. In 2020, housing inventory plummeted causing housing prices to skyrocket. The Fed decreased interest rates to 2-3% to keep the housing market from collapsing. Since then, the market inventory has balanced itself out, yet housing prices continue to be high. Kentucky remains a seller’s market.
Last year interest rates spiked. November 2022 saw an interest rate of 7.08%- the highest in 20 years. Experts at the Real Estate Forecast Summit claim “the peak has already occurred and we are on a downward path”.
But that doesn’t mean we can expect the interest rates to drop to pandemic-era levels either. They will likely balance out around 5.5% this year.
But will we see a similar decrease in house prices? Realtor.com predicts that house prices will be higher during the first few months of the year before slowly tapering off. There will likely still be a net increase in house prices throughout the year, but it won’t be as drastic as in recent years.
Overall, it won’t be a “hot” market this year… more like “lukewarm”.
Is it smarter to rent or buy in 2023?
There’s no easy answer to this question. But with rental prices rising at record rates with no plans to stop, buying a house can still be a smart move despite intimidating interest rates. Don’t immediately be deterred for this reason alone.
Schedule a meeting with a local mortgage broker*. Be upfront about a monthly payment that’s realistic for you. They will run numbers and get back to you with a home price you can afford. Once you have this number, research your area to see if there are any decent homes in your area listed at this price. Consider buying even if it’s not your dream home. If your quality of life would be comparable to your rental home, it’s always a smarter financial decision to invest in real estate. Money given to a landlord is money you’ll never see again.
Once you’re on the property ladder, you’ll be able to work your way up to your dream home faster than if you waited out a tepid economy.
Current interest rates are intimidating. But remember that you can always refinance your mortgage when interest rates drop.
*We recommend staying away from online mortgage calculators. They are a fun tool to calculate a general idea of the type of house you can afford. But they won’t give you accurate information on property taxes, escrow, or the best loan type for you. Only a mortgage broker can give you a realistic estimate of what you can afford.