Dave Ramsey warns Americans about the damage 'Bloody Sunday' left in its wake, gives advice for anyone who want to buy a home amid spiking interest rates
If sky-high house prices and mortgage rates have made you hit pause on your home buying plans, you may want to think again, or so says personal finance personality Dave Ramsey.
The average 30-year fixed mortgage rate leveled off slightly to 7.50% last week — down from the prior week’s average of 7.76% — however is still hovering near its highest level since 2000. At the same time, house prices continue to rise, primarily due to low inventory.
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According to the St. Louis Fed, the median home price in Q3 2023 was $431,000. Contrast this with the high of $468,000 they reported in 2022.
“[House] prices aren’t going to go anywhere but up, even with interest rates going up,” Ramsey said on a recent episode of “FOX & Friends.”
“The housing market is just stalled and, man, we've got Bloody Sunday with the student loans kicking back in [as of Oct. 1] and Christmas is bearing down on us so it is time to get on a budget and get on a plan.”
With that in mind, Ramsey says you shouldn’t sit back and wait for conditions to improve — reminding potential buyers that you can always refinance your home loan to get a better rate down the road. In fact, if you meet two criteria — “you’re out of debt and you’ve got your emergency fund" — Ramsey suggests going for it now.
Here’s how you can hit Ramsey’s critical financial conditions to buy your dream home — plus some other ways to invest in real estate while dodging housing market headwinds.
Become debt free
Ramsey was joined on “FOX & Friends” by his “The Ramsey Show” co-host George Kamel, who backed Ramsey’s bold housing call and mirrored his advice around becoming debt free.
“If you’re a millennial or you’re Gen Z, you’re feeling hopeless right now, you’re feeling cynical,” says Kamel. “Your parents are saying: ‘You’re throwing away money on rent, get a house, get a house, get a house’ — and you’re broke.
“You’ve got to have some patience because rent and mortgages are not apples to apples,” Kamel said, adding buying a home also comes with taxes and insurance — and in some cases, homeowners’ association fees and private mortgage insurance. All those expenses can add up, which is why the Ramsey camp argues it’s important to ensure you’re debt free with an emergency fund established before making an offer.
There are many different ways to handle debt, but in his well-known seven “baby steps” to financial success, Ramsey advocates for the snowball method. With this strategy, you pay off the smallest debt (or account with the lowest balance) first and make only minimum payments on all of your other outstanding debts. Once you’ve paid off your smallest debt, you move on to the next smallest debt, and so on.
But how much interest you end up paying on your debt is an important factor. If you've got a pile of high-interest debt on your credit card or your car loan, you could fall behind on your payments, be subject to financial penalties and your balance can quickly spiral out of control, making it even harder to get debt free. For you, it might make more sense to use the "avalanche method" of debt repayment, where you tackle the loan with the highest interest rate first and go from there.
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Build an emergency fund
Ramsey believes every adult American should have at least $1,000 set aside to cover life’s inevitable surprises, like you're suddenly slapped with a big medical bill or your car breaks down. That back-up fund will stop you from falling into financial distress.
But that's just meant to get you started. Once you've paid down your debts, Ramsey suggests revisiting your emergency fund to set aside three to six months worth of living expenses — including your rent or mortgage, other loan repayments, grocery and energy bills and other regular expenditures — to cover larger surprises like a job layoff or a long hospital stay.
Wherever you are on your savings journey, you might consider stashing some cash in a high-yield savings account (HYSA). With an HYSA, you could earn more interest on your money and benefit from greater compound growth than you would with a traditional savings or checking account.
You may also want to consider using other high-yield savings products like money market deposit accounts (MMDA) or a certificate of deposit (CD) to make the most of the current high interest rates. But remember that banks and credit unions will often charge an early withdrawal penalty for taking money out of a CD before its maturity date.
Other real estate options
Once you’ve hit those two financial milestones — paying down your debt and building an emergency fund — then Ramsey says you should go ahead and buy a house (if that’s what you want to do). But if you’re unconvinced, there are other ways to get a foothold in the real estate market without dealing with the extensive costs of homeownership.
For instance, you may want to consider putting your money in a real estate investment trust (REIT), which are publicly-traded companies that collect rent from tenants and pass that rent to shareholders in the form of regular dividend payments.
There are also online crowdfunding platforms that allow everyday investors to pool their money to purchase property (or a share of property) as a group.
If you don’t want to make investment decisions on your own, some new online platforms can even help you invest in diversified real estate portfolios that will maximize your returns while keeping your fees low.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
