What to Know:
- Housing affordability remains near historic lows as higher prices, mortgage rates, insurance costs, and maintenance expenses squeeze buyers.
- Prospective buyers should calculate the full cost of homeownership before deciding what they can afford.
- Home sellers may face unexpected capital gains taxes if their home’s appreciation exceeds IRS exclusion limits.
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The U.S. housing market has entered a period of uncertainty.
After years of rapid price appreciation fueled by low mortgage rates and intense competition, higher borrowing costs have cooled demand in many parts of the country. While home prices have remained relatively resilient, affordability has become one of the biggest challenges facing prospective buyers, leaving many households questioning whether now is the right time to purchase a home.
Today’s buyers must account for more than just a monthly mortgage payment.
Rising homeowners insurance premiums, higher property taxes in some communities, and increasing maintenance and repair costs have significantly raised the overall cost of homeownership. At the same time, elevated mortgage rates mean that even buyers with solid incomes may find themselves stretching their budgets further than they expected.
For homeowners considering selling, the picture is mixed as well.
Many have built substantial equity after years of rising home values, but those gains can also create unexpected tax consequences.
As buyers and sellers navigate a market that looks very different from just a few years ago, we spoke to our favorite business analyst, Jill Schlesinger, about how careful home ownership planning – and understanding the full financial picture – is more important than ever.
Here’s the full transcript of our interview:
WKMG-TV: The housing market has stalled this year. CBS News Business Analyst Jill Schlesinger is here to discuss what you should know if you buy or sell.
Jill, where do we stand with affordability when it comes to owning a home?
Jill Schlesinger: It’s pretty tough out there. We’ve got higher prices, increased mortgage interest rates, and elevated costs of homeowner’s insurance. All this has come together and been like a toxic combination for buyers. It really does mean that if you’re looking at what share of your income you have to devote to buying a house, it’s risen dramatically over the last five and 10 years.
In fact, think of it this way.
Let’s look at a house that you could have bought five years ago. Today, just five years later, when you look at the monthly payments for the same house, they’ve gone up by 80%. So affordability is difficult right now.
WKMG-TV: And Jill, if you are hoping to buy a home, what are the specific steps you should take?
Jill Schlesinger: Well, we always say you should run the numbers, but when I say run the numbers, don’t just do what your mortgage broker’s telling you to do.
Add, in addition to the mortgage, the principal, the interest, the homeowner’s insurance, the property taxes, and the maintenance. People are really finding that to do a costly repair every year or every couple of years adds to the cost of owning a home. You just wanna make sure that your cash flow, your income, can absorb the cost of that new home.
And even if those numbers do work, I think it’s important to ask yourself that if you were to buy that home, would you have to change your spending substantially?
Would you be able to keep funding your retirement account?
If you really are looking at that and saying, ‘I can’t do anything, I would have to live like a miser and not put money into retirement or education,’ you might be overextending.
Just remember, renting is a great option, especially in a market that’s not affordable. It buys you flexibility, liquidity or access to your money and freedom.
WKMG-TV: And Jill, we’ve talked about the buyers; let’s flip it around for a second. If you’re thinking about selling, what should you know?
Jill Schlesinger: You know, I think because housing prices have gone up by so much, a lot more sellers – many more of them are actually paying taxes, and they are very surprised by that.
So think of it this way.
You know maybe you bought a home many years ago for like a hundred grand. You go to sell it and it’s five or six hundred thousand dollars. Well, the IRS allows each individual to exclude up to $250,000 of capital gains. So you would still be subject to capital gains taxes, and you probably don’t consider yourself rich.
Just know that those capital gains taxes, they’re not going to go away.
But if you are selling, you’ve got to keep some of your proceeds in a safe cash account so you can pay Uncle Sam. That way you can avoid that terrible surprise that we often find occurs in April.
WKMG-TV: Jill, thank you very much.
You can see Jill regularly on CBS Mornings and the CBS Evening News. For more analysis, go to JillOnMoney.com.