Home Prices Continue To Hit New Records: How Can Buyers Cope?

Home prices cannot continue to rise indefinitely. Can they?

During the contagion of COVID-19, Americans have shown themselves willing to pay a premium for homes – so much so that house prices have broken all records. Spurred on by historically low mortgage rates, a lack of inventory and a pandemic-inspired nesting instinct, buyers continue to drive up home prices.

The median price of an existing home has exceeded $ 350,000 for the first time. The median price of new homes has just eclipsed the $ 400,000. This boom is a boon for sellers and a challenge for buyers, who increasingly have to stretch their housing budgets.

New housing prices hit a record

For the first time, the median price of new homes sold in the United States exceeded $ 400,000 over a three-month period, according to the latest quarterly data from the US Census Bureau and the Department of Housing and Urban Development.

A number of factors are behind the rise in new home prices. For starters, builders over the past decade have moved away from starter homes, focusing instead on more expensive – and more profitable – homes.

Meanwhile, builders have faced a shortage of available land, a shortage of workers, and soaring prices for lumber and other materials – what else? – increase prices.

Prices of existing homes remain close to records

Prices for existing homes topped $ 360,000 in June and have declined slightly since, according to the National Association of Realtors. Yet September’s median price remained above $ 350,000 – and 13% above its level a year ago.

Double-digit appreciation is great for sellers, but not great for buyers. “First-time buyers are particularly affected by historically high home prices, as they typically don’t have the savings to buy a home or the equity to offset such a purchase,” says Lawrence Yun, chief economist of the National Association of Realtors.

When will prices cool?

Housing economists say this boom is about to run out of steam. The Mortgage Bankers Association expects the annual appreciation to cool to 5% by the end of 2022. The National Association of Home Builders has a similar outlook.

“I don’t see an extended period of time where we’re talking about 15 to 20 percent year-over-year price growth,” says Robert Dietz, chief economist of the Builders Trade Group.

Various factors, including rising mortgage rates and increasing builders’ output, could slow residential property appreciation.

What buyers can do

For buyers, the fear of missing out on the real estate boom has spurred all kinds of new and different home buying habits. Bidding wars have become commonplace. Many buyers have agreed to forgo the contingencies of inspections and financing.

In an intense seller’s market, it is crucial to act aggressively. But with the chill in sight, there’s no harm in waiting a bit, says Eli Baracha, housing economist at Florida International University.

“It’s like we’re at an inflection point,” says Beracha. “It is difficult to say when exactly we will reach the current peak in the housing market. It might be wise for many people to consider renting out and reinvesting the money they would otherwise have spent on property in the country’s most expensive markets. You don’t want to be among the last to buy at the height of your local market, as it can take a long time before you can resell your property for a substantial return.

Greg McBride, chief financial analyst at Bankrate, also calls for caution.

“For potential buyers, making the biggest financial decision of your life under duress is not a recipe for success,” says McBride. “If you find yourself bidding to the limit of what you can afford, bidding out of the blue or after a five-minute visit, or being pressured to forgo a home inspection, you’d be doing probably better to go. There are worse things than staying where you are or renting for another year or two until you can buy in a more balanced and healthy market where you can do the necessary due diligence.

How to avoid paying too much

If you’re shopping for a home, here’s how you can avoid paying too much:

  • Breathe deeply. Such a hot market creates its own sense of urgency. Avoid paying more than you think a house is worth – there will always be another house.
  • Take into account local population trends. Populations in Texas, Florida, Utah, and North Carolina are growing. But in some Rust Belt markets, populations are declining, a reality that is driving down demand for housing. Buying in a warm market gives you more convenience than buying in a place where the population is declining.
  • Shop hard for a mortgage. Buyers may not have a lot of bargaining power when it comes to bidding on homes, but you can shop hard for a home loan. Getting multiple loan deals can save you thousands of dollars over the life of the loan.
  • Watch out for bidding wars. It’s not easy to avoid multiple auction situations in today’s market, where buyers pay tens of thousands of dollars more than the list price just to get a home.
  • Get started in auctions with a plan. In the heat of the moment, it’s easy to dramatically increase your prize just for trying to win. Before you get into a bidding war, set a clear cap on how much you’re willing to bid for the property and stick to it.

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About Teresa G. Wilson

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