I’ve been in the real estate industry for twenty years. The most common question I am asked is, “Is now a good time to buy a home?” In my two decades in the real estate market, I’ve seen housing inventory surpluses and deficits, wild interest rate fluctuations, mortgage loan requirement changes, recessions, and housing busts and booms. While there are many market factors involved in deciding whether to buy a home - which we’ll get into shortly - my advice to clients has remained constant: You should buy a house when you need one and are financially prepared to own one. If neither of those sounds like you? Then you should wait.
It’s really that simple.
Trying to time the market is incredibly challenging because many frequently changing factors affect buying – like housing inventory and affordability, interest rates and the lending environment, employment, and job growth. There are also micro factors in local markets that affect the viability of buying in any given part of the country – housing regulations, zoning, and local economic vibrancy, to name a few.
The Current Housing Shortage and Other External Factors
There is currently a nationwide shortage of houses available to meet the demand of buyers ready, willing, and able to buy homes. Most sellers are receiving an average of four offers for every listing.
So, what’s behind the housing boom? Several factors have contributed to the current housing inventory deficit. First, already low-interest rates went even LOWER, spurring a lot of buying and refinancing activity. Then, droves of Millennial buyers popped up out of nowhere, overnight finally ready to put down some roots after years of renting. The pandemic caused many people to reconsider their housing needs and location too. Lastly, listings are down slightly because sellers hesitated to put their homes on the market over pandemic concerns or fear they would not find a replacement property if their home sold.
The market responded just as your economics professor taught you it would. When supply is low and demand is high – prices rise. According to the National Association of Realtors, home prices have increased approximately 20% nationally.
So, the question of the moment is, “How long will it be before pricing levels out?” And many would-be buyers are wondering if they should wait until prices decline before jumping in. So, what would it take for prices to fall? A tsunami of housing inventory would need to hit the market – enough to satisfy demand and then enough to create a surplus large enough to put downward pricing pressure on sellers. We’d have to build up a surplus inventory of well over 6-9 months’ supply before pricing would swing back in a buyer’s favor.
Presently, a negative housing inventory exists. There are fewer homes on the market than demand, by almost two months or more pending on the area. There is industry insider chatter around the country that some sellers may slowly start offering their homes up for sell which would help ease the competitive pressure on buyers. The results of a realtor.com survey concluded that one in ten homeowners plans to sell this year, with 63 percent of those looking to list in the next six months.
That is unlikely to be enough to drive down pricing – only enough to help ease current demand.
Another factor adding to the housing inventory deficit is those home builders who would generally be relied upon to add new inventory to the market are experiencing their own set of headaches. Nationwide labor and material shortages, runaway material price increases, and supply chain disruption are causing delays in getting new inventory on the ground for would-be buyers. Some of those troubles may ease up as we get through the pandemic, but it won’t happen quickly.
So, waiting out for downward pricing could take a while. Quite possibly years. The other troubling prospect for buyers right now is the very real and looming fear that interest rates may begin to rise along with prices. Should this happen, folks who decided to wait out for lower prices may find themselves priced out of ownership altogether. Consider that if you bought a $300,000 house today at the current interest rate of 2.875% for a 30-year conventional loan with a 5% down payment, your principal and interest payment would be $1182.44. If interest rates climb by just 1%, you would only be able to spend $265,000 on a house and get the same payment. In other words, that 1% interest rate increase would cost you $35,000 worth of buying power which could make all the difference in the type or size of home you can afford.
There are many factors involved in deciding whether NOW is a good time to buy a home. If you’ve begun to think it might be the right time for you, there are three important “next steps” you need to take. Choose a lender you trust who is willing to spend time exploring the different loan programs that fit your needs. Work with an experienced realtor who sincerely wants to help you buy the right home for YOU – not just sell you a property. And lastly, in the competitive market we are in, don’t get swept up in the urgency and make an offer that erodes your ability to thoroughly evaluate the home before you close on it.
The time to buy a home is when you need one and are financially prepared to do so. Trying to game or time the market may end up leaving you out in the cold altogether.