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Suze Orman's advice on buying real estate right now: 'The tables have turned'

The median selling price of a U.S. home soared past $400,000 for the first time in May, the National Association of Realtors reported Tuesday. That 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 even though she says "the tables have turned a little."

In a new interview with Yahoo Finance's editor-in-chef, Andy Serwer, Orman dispensed advice for homebuyers and renters on how to navigate a tough environment with both soaring mortgage rates and skyrocketing rents. Orman encourages renters to be in the best financial shape 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 see the entire picture before you jump in," she said. "I think it's a little different than it was a year or two ago." In general, though, Orman suggests 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 go down really 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're going to see it go down dramatically. Maybe you'll only see it go up 5% or 7% a year."

Still, many experts are spotting signals that the housing market is cooling. Sales of previously owned homes dropped for the fourth straight month in May as interest rates creep up. This forecast came a week before the Federal Reserve voted to hike short-term interest rates by 75 basis points on Wednesday, the steepest hike since 1994.

Speaking to Yahoo Finance, Orman acknowledged that the housing market is changing. Specifically, she said buyers won't feel as rushed to bid for a house right away to beat out competing offers.

“You're not going to see a house go on the market, again, in my opinion, and get 30 offers over the asking price," Orman said. "I think now maybe you'll see three, four offers — maybe you have to lower your asking price a little bit."

'It is too late to refi'The housing market was booming last year. The 2021 National Association of REALTORS Profile of Home Buyers and Sellers found the typical home sold was only on the market for one week. With near-zero short-term interest rates and low 30-year fixed-rate mortgages (2.65%) in January 2021, prospective homebuyers were in luck.

That luck is starting to shift, even for existing homeowners. Fannie Mae’s Refinance Application-Level Index estimated only 2% of mortgages have a 50+ basis point incentive to refinance as of Thursday.

“It is too late to refi. You got to sit tight without a shadow of a doubt,” Orman said.

Orman also alerts homebuyers to be careful about adjustable-rate mortgages.

“If you can only afford a home because you're doing an adjustable-rate mortgage, and you don't know how they really work. I would be very careful with them if I were you,” warns Orman.

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

Even if it turns out you can't buy a home, renters can take steps to reduce their monthly payments.

“A landlord will really value you if you keep up the property. You paint on your own, you make it even more valuable for them,” says Orman. She also encourages renters to maintain a high FICO credit score, so landlords trust that they will be paid.

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

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