Suze Orman’s advice for buying real estate right now

The median selling price of a home in the United States topped $400,000 for the first time in May, the National Association of Realtors reported Tuesday. The news came just days after the 30-year fixed-rate mortgage rate hit 5.78%, the highest since the Great Recession.

Still, personal finance expert Suze Orman thinks the housing market holds promise for U.S. consumers, though she says “the tables have turned a bit.”

In a new interview with Yahoo Finance Editor-in-Chief Andy Serwer, Orman offered advice to buyers and renters on how to navigate a difficult environment with both rising mortgage rates and skyrocketing rents. Orman encourages tenants to be in the best financial position possible, so they can afford inflated costs and potentially negotiate lower leases. And she advises home hunters to be realistic about whether they can afford higher mortgage rates, property taxes and insurance.

“Just watch the whole picture before you jump in,” she said. “I think it’s a bit different than it was a year or two ago.” In general, however, Orman suggests that a home is still a wise investment.

TODAY — Pictured: Suze Orman on Wednesday, May 29, 2019 — (Photo by: Nathan Congleton/NBCU Photo Bank/NBCUniversal via Getty Images via Getty Images)

“I don’t think you’re going to see homes really go down in value. You know, the truth is, real estate always does pretty well during a recession,” Orman told Yahoo Finance on June 20. “..If you own real estate, I don’t think you’ll see it drop dramatically. . Maybe you’ll only see it increase by 5% or 7% per year.”

Still, many experts are spotting signals that the housing market is cooling. Used home sales fell for the fourth straight month in May as interest rates rose. The forecast came a week before the Federal Reserve on Wednesday voted to hike short-term interest rates by 75 basis points, the biggest hike since 1994.

Speaking to Yahoo Finance, Orman acknowledged that the housing market is changing. Specifically, she said buyers won’t feel as pressured to bid on a home right away to beat competing bids.

“You’re not going to see a house come on the market, again, in my opinion, and get 30 offers above the asking price,” Orman said. “I think now you’ll see maybe three, four offers – maybe you need to lower the asking price a bit.”

‘It’s too late to refi’

The housing market was booming last year. The National Association of REALTORS of Home Buyers and Sellers’ 2021 profile found that the typical home sold was only on the market for one week. With short-term interest rates close to zero and 30-year fixed rate mortgages low (2.65%) in January 2021, potential buyers have been in luck.

That luck is starting to turn, even for existing owners. Fannie Mae’s Refinance Application Level Index estimates that only 2% of mortgages have more than 50 basis points of incentive to refinance as of Thursday.

“It’s too late to refi. You have to sit there without a shadow of a doubt,” Orman said.

Orman also warns buyers to be careful with variable rate mortgages.

“If you can only afford to buy a house because you take out an adjustable rate mortgage and you don’t know how it really works. I would be very careful with them if I were you,” warns Orman.

Adjustable-rate mortgages can start out with lower payments than fixed-rate mortgages, but you could experience payment shock, negative amortization (when you owe more than you borrowed), or repayment penalties anticipated if rates change.

Even if it turns out you can’t buy a house, tenants can take steps to lower their monthly payments.

“A landlord will really like you if you keep the property. You paint on your own, you make it even more valuable to them,” says Orman. It also encourages tenants to maintain a high FICO credit score, so landlords have confidence that they will be paid.

Yaseen Shah is a writer at Yahoo Finance. Follow him on Twitter @yaseennshah22

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