Sometimes Homebuying Means Blocking Out the Noise

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(This article was originally published in NextMove, our weekly newsletter on the housing market. Sign up for it using the box below.)

“Correction” is not my favorite word.

This is Jon Reed with NextAdvisor. As a career journalist, the word usually means I got something wrong in a story. And that means putting a little note in the paper the next day explaining what I got wrong. It’s important for transparency and trust, but it’s not fun for me.

But there’s an even less fun definition of the word in economics, and it’s scary to hear it in the news right now, especially when it comes from the central bank of the United States. 

In finance, a correction is when a price or other economic indicator suddenly changes course – usually downward – and it sends investors and consumers into a bad mood. So it’s understandable that many people are anxious about Federal Reserve Chairman Jerome Powell using the phrase “difficult correction” when referring to the housing market last week.

Powell’s comments came after the Fed once again hiked its key interest rate, and it highlights just how quickly things are changing. Home prices were soaring at the start of the year, and while they’re still near record-high levels, they aren’t moving upward anymore. Lower home prices might sound like good news if you were priced out of buying last winter, but here’s the bad news. The reason prices are dropping is because mortgage rates, like other interest rates, have surged dramatically as the Fed tries to slow down inflation. You’re now likely to pay a rate twice what you would’ve paid this time last year. So although the house has a lower list price, it’ll cost you more.

Be careful what you wish for, I guess.

Despite all these headaches, there’s one important thing to keep in mind: Your personal finances are not the economy.

If you find a home you like and can afford, the “difficult correction” doesn’t matter. 

Keep an eye on prices to find a good deal, and keep an eye on mortgage rates to make sure you can afford the payments. But if you find a house in your price range that you see yourself living in, even if the world faces some rocky roads ahead, block out the noise. Because nobody really knows what will happen next.