Americans are rushing to buy homes right now. But should you be part of it?
Sales of previously owned homes in the United States rose 24.7% between June and July to a seasonally adjusted annual rate of 5.86 million, the National Association of Realtors reported on Friday. Not only was the percentage increase a record high, the sales volume was the highest the United States has seen since 2006.
To a large extent, the exceptional demand for housing indicates that Americans are looking to make up for lost time. Many economists believe that what we’re seeing right now is essentially a postponed spring home buying season. “The housing market is on a sugar spike brought on by government stimulus and a pandemic fueled low density housing rush,” said Daren Blomquist, vice president of market economics at Auction.com , a real estate website for foreclosure sales.
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“Potential buyers will be in a better position to be successful as homeowners if they understand that this high sugar level will not last and ensure that their decision to buy is based on longer term factors that will affect their ability and their willingness to commit to repaying a considerable amount of debt over the next 30 years, ”added Blomquist.
But even though home selling activity is at record highs, many Americans are unsure whether the time is right to make the biggest financial decision in most people’s lives. The Fannie Mae FNMA home buying sentiment index,
fell in July, as people’s opinions on how to buy a home worsened alongside the increase in coronavirus cases across much of the country.
Here are the factors that experts say you need to consider:
Interest rates remain close to their all-time low
From a financing perspective, buying a home is a given at this time. And indeed, historically low interest rates have helped spur much of the rise in home sales.
“No matter what you’re looking for, now is a great time to buy because today’s low interest rates can stretch your purchasing power,” said Bill Banfield, executive vice president of capital markets at Quicken Loans RKT,
“With interest rates available in both, a buyer can afford a home much higher than he could have a few years ago.”
While many economists expect interest rates to stay about this low for a while, they likely won’t go down much. Mortgage rates have fallen in response to the pandemic and its effects on the economy. So if a vaccine or treatment for COVID-19 were to be discovered, the rates would likely increase.
“There are no guarantees,” said Tendayi Kapfidze, chief economist at LendingTree TREE,
“Affordability could therefore decrease in the future.”
There are not many houses for sale
As the saying goes, you can’t buy what isn’t for sale. And right now, well, there isn’t much for sale in most of the country.
“Now is a great time to buy because of the incredible mortgage rates, but a terrible time to buy because of stocks,” said Ralph McLaughlin, chief economist and senior vice president of analysis at the tech company. Financial Haus.
As McLaughlin said, buyers are going to face a tough choice right now: lock in a low rate and settle for whatever is on the market, or expect the home of your dreams. and risk yourself a higher interest rate.
“If you are planning on finding your dream home, it’s probably best to wait,” McLaughlin said. “But if you’re planning to trade in a few years, it’s not a terrible time, other than low inventory, of course. “
Competition drives faster sales and higher prices
The tight inventory of homes for sale right now is meeting a large number of impatient buyers. And that’s a recipe for rising prices and bidding wars.
Median home prices rose 10.1% year-over-year for the week ending August 15, according to a recent report from Realtor.com. This is the fastest growth in listing prices since January 2018. Low interest rates allow prices to rise faster.
And homes are pulling off the market at a rapid rate. More than two-thirds of homes sold in July had been on the market for less than a month, the National Association of Realtors reported. “This fast-paced decision-making environment can challenge some buyers, especially newcomers to the process,” said Danielle Hale, chief economist at Realtor.com.
The good news is that high prices may cause some sellers to enter the market, said Holden Lewis, housing and mortgage expert at personal finance website NerdWallet. An increased inventory in the market would control prices and competition.
Falling prices aren’t necessarily something buyers should expect. “If prices drop significantly and stocks rise dramatically, it means the economy has taken a tough turn for the worse and you may have other priorities besides housing,” said Robert Frick, economist at company at the Navy Federal Credit Union.
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Where you live and what lifestyle you lead matters
As any real estate agent will tell you, all real estate is local. So what happens in a city or nationally may have little bearing on what you will encounter in the housing market.
“Are you an owner moving from a rapidly changing real estate market… to a real estate market where the pace is a little less hectic? If so, then maybe now is a good time for you, ”Hale said.
For example, if you own a home in a suburb of New York City, but want to live closer to the action, such as Manhattan, now might be a great time to buy. A recent Zillow ZG,
report threw fresh water on the common wisdom that people shy away from to the suburbs – with a few exceptions. Zillow found that in most parts of the country, suburban markets have not strengthened at a disproportionately faster rate than urban markets.
But in Manhattan, home values are indeed down 4.2% from last year and properties are staying on the market longer.
Yet the most important factor for most people in deciding to buy will be their lifestyle. Traditionally, most home buying decisions have revolved around such things as getting married, having children, or retiring. Millennials are growing their family and reaching their peak of home buying. And with more people working from home, the need for more space is a factor for many potential buyers.
If you find yourself in this position, experts suggest not to hesitate. If you have enough savings to pay for the down payment and incidental costs of buying a home, get a great rate and find a home that meets your needs.
On the flip side, if you’re “in between jobs or working in an industry that’s particularly hit by the recession, it might be best to wait,” Hale said.