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If you’ve been hustling for years, starting side hustles and budgeting, you may feel ready to buy the swanky new condo in 2022. And you certainly deserve it. Managing to make it through the pandemic with funds available was no mean feat. You can now learn the process of buying a condo and how to start moving closer towards ownership.
However, while we’ve all been working hard to make money over the past two years, the housing market has been working harder. Prices have risen at an incredible speed, with low mortgage rates and low supply increasing the value of homes throughout the US. What may have seemed affordable two years ago could easily cost a hundred thousand dollars more today.
Can you afford to buy that swanky new condo in 2022? If so, is it still a good idea?
Why can’t I afford a condo?
Okay, so you knew that buying a condo would cost a lot of money, which is why you’ve worked so hard towards it. Yes, prices are up, but that hasn’t stopped other buyers. Can you not just forge ahead with your plans?
The problem is that the circumstances that made it possible for people to buy homes at inflated prices are changing. Mortgage rates were at an all-time low for over a year. The Federal Reserve had capped interest rates so as to stimulate economic growth in the wake of the pandemic. That was never meant to be permanent.
In 2022, those low interest rates were leading to record-high inflation. Economists throughout the US, and those guiding the Fed, all saw the need to increase interest rates to bring inflation down. They started to do so and it was working until the Russian invasion of Ukraine.
In the past couple of months, sanctions on Russian energy and other imports have led to surging inflation despite everyone’s best efforts. Now interest rates are going up, leading to mortgage rates hitting their highest level in years. This immediately makes your dream condo much more difficult to afford. Furthermore, because of inflation, you are likely to have a lot less budget available. Even at previous costs, your budget may not accommodate a condo in today’s climate.
But what if your budget does accommodate it? Should you go ahead and put down an offer?
Fears of a Housing Bubble
Over the past week, experts have begun to acknowledge that the US is facing a housing bubble. In fact, housing prices have been surging at a rate greater than they did in the lead up to the big crash of the 2000s. This does not necessarily mean the housing bubble is going to burst. However, an anxious tone is slowly creeping into the way the news is being reported, which does not bode well.
The simple reality is that housing prices have risen based on very little material basis. Supply and demand have driven those prices up, not costs or economic trends. With inflation tightening the pockets of many Americans and high mortgage rates making the high prices seem a lot higher than they did at the start of the year, demand could plummet.
This is not to say that the bubble will burst. There is no concrete reason that it should go the same way as it did in the 2000s. But the rising fears may cause buyers to become more reluctant, which could precipitate a fall. Unfortunately, many economic crashes are based in fear-driven actions, creating a self-fulfilling prophecy.
Deciding not to buy a condo because of this may be making your own contribution to that self-fulfilling prophecy. But it is prudent to be cautious. If the bubble is going to burst soon, buying now could mean paying more for your condo than it will ever again be worth. It could mean buying at exactly the wrong moment – the peak of the surge.
There is far more to be said on this topic, and as always there is no way of knowing what will happen until it has happened. Hindsight is rarely kind. Buying a condo now may not be a terrible idea, but you should go into the decision having researched every aspect of it.