Should you buy a home right now? Here are the 6 things you should know before diving into the bonkers housing market.
- Low mortgage rates and the remote-work boom fueled home-buying during the pandemic.
- The frenzy has depleted inventory, sent home prices soaring, and anointed new hot places to live.
- This guide lays out the facts to know to help decide if you're ready for homeownership.
The hottest pandemic purchase is a house.
Some 36 million Americans traded homes in 2020, according to one Zillow estimate. Unmoored by remote work and driven by the desire to be near family or enjoy a lower cost of living, buyers have been snapping up primary residences and second homes, fleeing the coastal cities and flooding states such as Texas and Florida, as well as smaller cities, spacious suburbs, and vacation-home spots.
The mass relocations and purchases - coupled with the reluctance of existing homeowners to find a new place to live during a pandemic - have driven the number of homes for sale down to record lows, which in turn has propelled home prices to new highs. Intense bidding have been commonplace. Institutional investors have even been getting in on the action.
The first signs of a cooling pandemic housing market are arriving: Redfin just found that home sale prices dipped in July - the first time they didn't set a new record in five months. Even still, prices have much to tumble much further to reach last year's levels: The four-week average for sale prices in July was 18% higher year-over-year.
We're still in a housing affordability crisis. It's difficult to break into the real-estate market. Here are six things to understand in order to decide whether you're ready to take the plunge into homeownership.
1. There's a striking imbalance of supply and demand
Competition to buy a home is fierce.
There are more people who want to purchase properties than there are homes on the market. (There are even more real-estate agents in the US than there are homes for sale.)
Dwindling housing supply has fostered intense competition marked by bidding wars and all-cash offers.
The tightening housing market is goading prospective buyers into expensive homes that don't ultimately fit their wants or needs. But for those with cash to spare who are prepared to compromise, now could be a decent time to scoop up a property, especially as prices ease up a touch.
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2. Investor activity overcrowds the market, further shrinking inventory
Low mortgage rates and the desire for comfortable work-from-home digs have fueled the home-buying frenzy depleting inventory. The few houses available are selling quickly - and the buyers aren't always hopeful first-time house hunters. Sometimes it's a $50 billion private-equity firm.
Large-scale investors, such as Blackstone and Invitation Homes, have been snapping up homes across the country to rent out for a profit, beating out everyday Americans in bidding wars by offering cash and skipping due diligence. In other instances, it's a company nabbing homes at below-market prices for cash, only to turn around and sell them for tens of thousands more weeks later.
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3. The current competitive climate has pushed existing home prices sky high
The spike in real-estate activity has decimated housing inventory, ultimately ratcheting home prices up. It means you could be overpaying for a property you'd be settling for anyway.
Mortgage rates are still at historic lows, but the high home prices can cancel out the opportunity to get more house for your money and keep monthly payments affordable.
And don't forget to budget for closing costs and insurance.
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4. Building a new home may not be much of an alternative
While existing listings dwindle - in part because homeowners are reluctant to resell their homes out of fear that they may not be able to afford their next one - a possible solution is to buy land and build a new house.
But the raw materials necessary to construct a new property have gotten exorbitantly expensive amid the pandemic. Logistics and shipping issues have resulted in long waits for certain supplies.
There's also a finite number of contractors and workers to erect such homes. Those workers are in demand, meaning labor costs are also high. Builders nationwide are facing severe delays to complete new builds or even finish renovation projects on fixer-uppers.
The added costs and delays slow down builders, lead to even more expensive home prices, and act as a deterrent to hopeful buyers.
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5. Certain real estate markets are hotter - and far more unaffordable - than others
The pandemic emboldened many Americans - particularly employees who could work remotely - to ditch their big-city apartments and try out the suburbs, rural areas, or different states.
It led to booms in states such as Texas, Florida, Colorado, and North Carolina.
Buying a home in these newly popular areas may result in even more competition. Think higher prices and fewer houses to choose from.
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Phoenix is so hot right now. No, really.
6. Buying a house is a personal decision - research before making any offers
Over the past year, some have snatched up houses only to be met with buyer's remorse, while others have happily profited from their real-estate investments.
House-hunting hopefuls can prepare to buy by establishing an emergency fund, determining how much to budget, and getting preapproved for a mortgage.
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