What to Tell Clients Who Want to Buy a Home Now: Advisors’ Advice

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1. We have a few considerations when purchasing a house in the current rate environment. We have to start by determining whether the monthly payment is manageable. Interest rates are still at relatively low rates historically, and the average American stays between 7-10 years in their home.

Rates will either go up or down during that period. If they go down, a refinance can be a solid option. If they go up, our clients will have locked in a lower rate. Furthermore, there is a difference between the quoted rate, and the effective rate — if the loan is paid off faster, the effective rate goes down.

We recommend clients work with a lender that services its own loans and allows for weekly or biweekly payments. This makes loan paydown happen more quickly for the same total monthly payment as more money is applied to principal faster.

— Ian Weiner, owner of Simply Retire Inc. in Bentonville, California

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2. My advice on home purchases rarely changes. If you are planning to OWN a house for a more extended period of time, generally five or more years, it often makes sense to purchase. Own is the key word. Living in the property vs. owning vs. renting it out has similar financial impacts.

On the other hand, if your living situation is in flux, don't make a purchase. During these times of increasing interest rates, we will need to accept additional risks for a home purchase, such as reduced future prices of the property. Willingness to extend ownership of the property decreases that risk. Choosing a more conservative home will also reduce the transaction risk, and as always, all discussions of financial strategies have more nuance, and one should seek personalized advice.

— Dustin G. Suttle, managing member at Suttle Crossland Wealth Advisors in Scottsdale, Arizona

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3. I work with young lawyers. Many of them are interested in buying a home soon. I am advising clients by saying:

"I believe home prices will not fall significantly below current levels over the next few years. Primarily because there is a low supply of homes available for sale, and there aren't enough homes coming to market anytime soon to substantially increase the supply.

On the demand side, the Federal Reserve predicts that interest rates will continue to increase or plateau for the next 1-2 years. Higher rates should lower demand, but not enough to materially decrease home prices due to the supply shortage.

I advise eager homebuyers to purchase homes if the monthly mortgage payment is less than 25% of their monthly income. Clients should consider looking for homes in a lower price range, eager sellers willing to negotiate a lower price, or paying a larger down payment to minimize the monthly payment."

— L.J. Jones, financial planner, founder and owner of Developing Financial LLC in Pacifica, California

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4. I run an independent practice and I often work with millennials that are ready to purchase their first home but are wondering if now is a good time. This is what I share with them.

If you don't have an immediate need for a home and can be flexible for another six months to a year then I'm advising folks to hold off and wait to see what happens in the market. As the market cools, which is the Federal Reserve's intention, then buyers will have more negotiating power.

I let them know that supply is still limited so don't expect to see house prices dramatically fall but they may find better prices in the upcoming months. And when it comes to higher borrowing costs I just remind them they have the option of using a variable interest rate loan or to think about refinancing in the future when interest rates go down.

— Nathan Mueller, CFP, financial planner and financial coach at BlackBird Financial Planning in Pagosa Springs, Colorado

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5. Lately, I've been talking to clients and giving them two separate points of view.

On one hand, if they truly want a house right now, I explain the importance of picking one that has a mortgage that's affordable in an area that they appreciate and know they can stay in for a long time. I've aimed to keep the monthly payment (PITI) under 33% of their pretax household income. We also look at the stability of their income and make it a goal to improve the marketability of their resume just in case they're laid off. We at Progress Wealth Management believe in 30-year fixed mortgages for most people due to the risk involved with a 5-year ARM in an environment like this.

On the other hand, considering the number of layoffs that have been happening and the chance they may move, it's possible that buying a house for anyone isn't wise right now. It's important to ensure that your client can afford the risk involved with getting a mortgage. This means stable employment, a set of skills in high demand, a strong emergency fund, the ability to afford high-quality homeowners insurance and still be able to save sufficiently to be on track for the goals they hope to meet in life.

— Blaine Thiederman, financial advisor and founder of Progress Wealth Management in Arvada, Colorado

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6. The short-term changes in mortgage rates are almost impossible to predict. I would tell a client that if they are looking to buy a house and it is the right time for their family and financial situation, that far outweighs interest rates. They need to buy at a price that is affordable at the current rate, and can't bank on financing after large rate decreases because that may not happen for quite some time.

— Erik M. Baskin, founder and financial planner at Baskin Financial Planning in Dayton, Ohio

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7. With higher interest rates and the possibility of recession, it doesn't necessarily mean that buying a house is a bad idea. Instead, there are just a few things you want to prioritize.

First of all, I would suggest putting at least 20% down on the home. In a recessionary period, you want to be sure that even if home values decrease your home value stays above your loan amount, and your down payment makes that possible. Second, make sure that the monthly payment allows for comfort in your monthly budget in case your income decreases.

Finally, make sure you have an emergency fund that is large enough to cover unexpected home repairs or expenses and to cover your spending should you need to change jobs or income sources.

— Jennifer (Belz) Marx, owner of Partner Financial Planning in Lakewood, Colorado

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8. Buyers should buy only what they can afford today. Consider future declining interest rates, when you can refinance to achieve a lower payment, a tailwind that might put more money in your pocket. Fixed rates and steady, predictable payments are best for most. Don’t bank on lower rates and payments in the future — we don’t know if or when it might happen.

— Noah Damsky, principal of Marina Wealth Advisors in Los Angeles

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9. My advice is that there is never a "right time" to purchase a home. There might be more advantageous times to purchase a home, but at the end of the day you have one question that you have to answer: "Can you afford the monthly payment?”

If the answer is yes, then the swirling variables around you don't really affect the financial plan. Keep in mind that when it comes to purchasing a home you're not married to the interest rate because you can always refinance it in the future if rates drop again. You are, however, married to the purchase price, so be mindful not to overpay for a home if you don't have to.

I encourage clients to partner with an informed realtor and mortgage specialist and often make referral recommendations being that I vet them out and often utilize their services myself. My goal is to make sure the client's best interest is in the forefront and by being integrated with the mortgage specialist and realtor we can all stay on the same page working toward the client's goal!

— Michael Acosta, financial planner at Consolidated Planning in Charlotte, North Carolina

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10. Rising rates are nothing compared to rising rents. For buyers who are nervous about purchasing a new home because a year ago the mortgage rate would have been 3% less, it’s a reminder that their rent payment is indeed paying a mortgage, just not their own. Locally, rents have gone up so much, even with the higher mortgage rates, in some cases, it’s cheaper to own.

— Joe Dunat, wealth advisor at The Sturkie Wealth Management Group of Stratos Wealth Partners in Lexington, South Carolina

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11. For those clients looking for a house, I'm recommending they pause for the next six months. In some areas of the U.S., housing prices are still near all-time highs while mortgage rates are on their way up. We are now talking about using ARMs again, which hasn't been a real choice in a long time.

While no one really knows what will happen with housing or a recession, taking a breath and seeing how things turn out seems to be the prudent thing to do. For those who have a house and the market is still hot in their area, it may be time to sell, and rent for 6-12 months before they buy again.

— Jay Zigmont, founder of Childfree Wealth in Water Valley, Mississippi

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