Housing: What to consider before buying a home this year

Creative Planning Private Wealth Manager Daniel Graff joins Yahoo Finance Live to discuss what to consider before buying a home this year.

Video transcript

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BRIAN SOZZI: We're taking a closer look at the housing sector, as the 30 year mortgage rate has climbed above 5%, making home ownership a challenging investment for many people. Joining us now to break down his tips for navigating the current housing environment is Creative Planning Private Wealth Manager Daniel Graff.

Daniel, good to see you here this morning. Look, we're almost at the point for many households where they might have to go to Home Depot and buy a shed and live in the woods. I mean, the cost of buying a home have gone through the roof, no pun intended. So what should we be doing if we want to buy that first home?

DANIEL GRAFF: Sure, no, it is a difficult environment. Thanks so much for having me on. I think one thing is considering a little bit larger down payment, just given the interest rate environment that we are in. There's not a whole lot of places where you can make 5% on your money in a conservative investment.

So, having a little bit larger down payment, it's certainly helpful. One other consideration is to use loans, like home equity lines or margin loans, pledged asset lines, against a portfolio. That can give you a little bit more cash for a down payment that way.

But, on the other side of that coin, being cautious about debt that is floating rate. Most of those equity lines, plus the asset lines and margin loans, are going to have a floating rate. And as the Fed increases rates, you may see a little bit higher cost there as well.

JULIE HYMAN: I mean, it's interesting, the idea of raising the cash for the down payment being a little bit more creative, right? I think it's also tough in this environment, because markets are sort of uncertain. Maybe people are also down in their portfolios if they're trying to sell stocks to--

DANIEL GRAFF: Sure.

JULIE HYMAN: --get that down payment. So, is that one of the reasons why people maybe need to be a little bit more creative here?

DANIEL GRAFF: Yeah, so a couple of reasons, one is to delay the taxation on the assets. So, obviously, if you're selling stocks, while they may be down this year, have been on quite a run for several years. And so, many people have gains in their portfolio. That's a way to access some of the cash from the portfolio without having to sell. And so, that can create a bit of an advantage for investors who are looking for a little bit more liquidity

I think, given the environment and the rising rates, the uncertainty that you talk about, and that's why I would probably be just cautious with regard to the percentage that is being taken on loan from a portfolio. Generally, on a margin line, you can loan up to 50%. But I would say staying around the 20% or less range would certainly be advantageous in this environment, just not getting yourself anywhere close to a troublesome percentage if markets are to be volatile.

BRIAN SOZZI: If someone is looking to sell their home now, what considerations should they be making?

DANIEL GRAFF: Yeah, so I think one of the things that's been really interesting for supply in the housing market is that people aren't selling, even though it is a seller's market, because they're worried about what they can go buy. And so I think that's probably-- the biggest consideration is do you have a place to move?

And if you're purchasing in this market, you know, I think that's really where the challenge is, and it's probably a time to be a little bit more patient on the purchasing side. The housing market seems to be in a bit of a sandwich, between rising rates, which are putting pressure potentially on home prices for the near term, and then higher costs, which is making it more expensive to build. It's making rents go up.

And so, there are just very few alternatives. So in a limited supply environment, I think that's the biggest consideration is what's next for your housing choice.