Should You Buy a Home?
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Here's your Money Briefing for Sunday, January 21st. I'm J.R. Whelan for The Wall Street Journal. The third installment of our four-part series about planning your financial future focuses on the biggest purchase you're likely to make in your life, a home. And while picturing yourself inside a new home might be easy, the path to get there is filled with questions.
This is also a long commitment. It's why people will put off buying a home or they will rush to buy a home. Because if you're looking at fixed rates on a 30-year mortgage, that means you're going to be with that interest rate for 30 years. You can refinance. You can do other things to either lower it or change it. But you have to feel comfortable with it.
We'll talk to WSJ's Beret Lam and Julia Carpenter, authors of the book The New Rules of Money, after the break.
Should you buy a house? It's an important question, but it's not the only question you should ask if you're thinking of buying your first home or moving to a new house. Beret Lam and Julia Carpenter, authors of The New Rules of Money, join me. Welcome back, guys.
Great to be here. Thanks for having us.
It seems like every week we get new stats about the housing market. New home prices, existing home prices, mortgage rates. Give us a quick snapshot of what the housing market looks like right now.
We are in a period of time where there is very low housing inventory. And if you talk to any house hunter, they already know this. There is a dearth of starter homes for first-time homebuyers. And that puts them at a real disadvantage when they're trying to find something that is affordable but also the right size for them. Affordability.
It has really been like the... were that people haven't really focused on the last couple of years. We had a period of low interest rates, which made housing theoretically more affordable. But during that time, because of the low inventory and the high competition, prices were actually driven up quite a bit. So even if you have a low interest rate and you can borrow money for cheaply, you were still paying like a big sticker price for these homes. And now, you know, we're in a period of higher interest rates. People are expecting the Federal Reserve to cut rates in the coming year, though we don't know when. When rates move down, housing prices tend to move up. It also frees up inventory. But when rates go up, there's maybe more to pick from and sellers who are more willing to negotiate with you.
So let's talk about the first steps that people could take who want to buy a house. There are lots of apps with pages of listings. But when people see the price, what questions should they be asking themselves?
a lot of people see a price and they think either, wow, that is way too much money. That's actually doable for me. But it's all about the mortgage. You need to look at what the mortgage rate is, what you can afford in terms of monthly payments on your mortgage, and also what makes sense for you. If you're paying this mortgage for 30 years, you need to think about what your stability is in terms of income and what your life is going to look like.
I have a different take on this. I've never thought that the first step that you take to buying a house is to browse Zillow or like look at listings. I look at my bank account because the first thing you need to learn about a mortgage is the down payment. How much do I need for a down payment? How much can I afford monthly? In terms of a down payment, so I would start from there, which is save money. Or if you have a good amount saved, I would work that way. I would say, like, this is how much I could put down for a down payment and this is how much I can afford for a monthly. What's my budget? And then start browsing. Yeah.
But don't you think, though, that what you have saved for a down payment determines the mortgage? It could. And vice versa? It could. Yeah. I'm thinking about so many people who say, wow, this looks great, and I'll just put down 2% for a mortgage. That's awesome. And then I say, well, hold on.
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