The housing market is in a flurry these days. There are fewer and fewer properties on the market, with new construction increasing but not keeping up with the great demand.
The National Association of Realtors (NAR) stated that at the end of February this year, the inventory of available homes for sale across the country dipped to a record low of 1.03 million and were usually sold within 20 days from listing. This inventory was about 30 percent less than the number of units available in February 2020.
The disparity between supply and demand is driving housing prices higher and higher. According to the real estate website Redfin, it is the first time that the average house in the U.S. is selling above its listed price, up to as much as 107 percent of asking prices in Austin, Texas, for instance.
Redfin surveyed 429 counties and found that in 310 of them, median prices in February rose by at least 10 percent compared to February 2020. On the national level, the median selling price of a single-family home increased in the last three months of last year by almost 15 percent to $315,900 or more than four times the country’s median family income of $77,774.
Less than one-third of the market now are first-time buyers, when usually they comprised 40 percent of all buyers. According to the NAR, the prices have become too steep for first-timers, mostly millennials from 25 to 34 years old. Their competition includes current homeowners selling to take advantage of how high prices have increased their home equity and are buying a bigger house in more affordable areas.
Tips on Buying
Here are some tips on what you need to know before purchasing a home. First, you must gather as much information as possible to ensure that you do not miss anything you can benefit from.
If you are like the 44 percent of millennials found by realtor.com to be unable to afford a down payment for a house, you must check if you qualify for any of the loan programs available that accept as low as five percent down payment without mortgage insurance. You must also check out the list of top markets identified by the company based on the availability of houses for sale, housing prices vis-à-vis local incomes and lower than the national median, job opportunities, percentage of millennials living there, and amenities.
With only one city per state, the top ten are Bloomington, Illinois; Iowa City, Iowa; Kalamazoo, Michigan; Great Falls, Montana; Eau Claire, Wisconsin; Savannah, Georgia; Schenectady, New York; Taylorville, Utah; Harrisonburg, Virginia; and Rapid City, South Dakota. The median price at Kalamazoo is $155,000, while the median price at Taylorsville is $350,000.
Even in these cities, you must expect stiff competition from other buyers. Observers state that many buyers waive all contingencies or outright waiving their right to an appraisal and home inspection. This means that if you see a rusted and sagging gutter, you agree to shoulder the cost of having your seamless gutters installed instead of having this deducted from the price of the house.
The same goes for any other construction issue you find. If you refuse to do this, other buyers are waiting to snap up the house with all its flaws. Do the math first, though, to see if you can afford the repairs even with your monthly mortgage payments and living expenses.
Finally, you must put your mortgage in order, with a pre-approval letter in hand. This will put you in the lead among buyers. The only ones who can trump this are those who are buying fully in cash.
To Buy or Not to Buy
You have two choices. One is to buy now before prices go even higher. You must be ready to fight tooth and nail against many competitors to get the house you want. Also, you must be ready with your bottom line when you negotiate. You must know how far you are willing to compromise to win the house.
The other option is to wait and hope that prices will eventually go down. Taylor Marr, the lead economist of Redfin, told Forbes contributor Peter Lane Taylor that mortgage rates will likely rise strongly soon, which will slow down the house-buying frenzy and return prices to the level of wages. If you can wait that long, you may be able to buy a bigger and better house with your budget.
But then again, the pandemic has shown us that life is short, and anything can happen anytime. Just make sure you are fully equipped with information and then go with what your gut feeling tells you, especially if you have your eye on the house you think is the one for you.