The housing market ignited in 2020 as Americans decided they wanted a home all at once and were willing to pay them.
Two years later, the housing boom in the pandemic era is intensifying. House prices set records one after another. Bidding wars are commonplace in many markets.
Persistent price hikes are good news for home sellers, but for buyers who are forced to pay prices that were unthinkable a year or two ago, and even basics such as appraisal exemptions and inspection clauses. Even avoiding safeguards isn’t that great.
“This is a strange market,” says Donna Deaton, a RE / MAX Victory + Affiliates realtor in West Chester, Ohio. “I want to get rid of it.”
Unfortunately, the continuing shortage of sellers means that this fierce market for sellers will not disappear for some time. Affordable It remains an issue.
Soaring prices aren’t the only factor that puts pressure on buyers.There is also a dramatic rise Mortgage ratesSince the summer of 2021, it has jumped by more than 2 percent. This means that buyers can’t afford to buy as many homes as they once did. The National Association of Home Builders estimates that less than half of the homes sold in the United States are within the family budget and the median income in the United States is $ 90,000.
With rising interest rates and 20% year-over-year increases in housing construction material costs, housing costs are rising much faster than wages, and the problem of affordability continues to grow. “
— Robert DietzNational Association of Home Builders Chief Economist
The oppression is especially serious for first-time buyers who have not built equity that allows them to trade up to another home.so Bank rate survey Almost two-thirds (64%) of non-homeowners, conducted earlier this year, say that affordable factors prevent them from owning a home. This includes 43% who said their income level was not high enough, 39% who thought their home prices were too high, and 36% who couldn’t afford a down payment or closure costs (respondents have multiple factors). You can select).
In addition, 58% of U.S. adults have more affordable housing, such as out-of-state (27%), fixer upper purchases (21%), and distance travel from family and friends (20%). Ready to take action to find out. ), Move far from work (13%), move to less desirable areas (11%), and / or other actions (3%). 75% of Gen Z (18-25 years) and 69% of Millennials (26-41 years) have more affordable homes compared to Gen X (42-57 years) and 59% of 41. Will take at least one action to find out. Percentage of baby boomers (58-76 years).
Despite the tough times, millions of Americans will buy a home this year. If it explains your situation, and if you are stretching to buy a place, here are some tips and tactics to help you navigate the challenging market. I have.
Think in the long run — and realistically
Yes, the big rise in house prices reminded many Housing bubble However, housing experts say it is unlikely to mimic the last bust when home prices plummeted. This time, prices could level off or fall rather than plummet.
To protect yourself from the recession, do not buy a home unless you plan to keep it for at least 3-5 years. Keep in mind that, with rare exceptions, residential real estate has retained its value for many years.
“Homes are a very good investment,” says Alec Hartman of Welcome Homes, an online homebuilding platform. “In addition, mortgages are compulsory savings plans.”
In other words, when you pay your monthly mortgage, you put some of each check towards your own fairness in the house. All of these factors should help alleviate anxiety about buying in the boom.
“Even if it’s the tendency of most people, you shouldn’t be afraid,” says Hartman.
Desperate negativeism is not very effective in building your wealth in the long run, but neither is unlimited optimism. Greg McBride, Chief Financial Analyst at Bankrate, offers a realistic view of how high home prices will be.
“A significant rise in home prices means that today’s buyers need a longer holding period to build a meaningful equity stake that they can carry with you,” says McBride. “If you plan to change places and leave with a pile of cash within two years, the train has left the station. If you plan to stay there for seven years, the odds are in your favor. “
After double-digit price increases for the second year in a row, most housing economists agree that a slowdown will come.
“Don’t rely on further house price increases, as it is a birthright. It’s not,” says McBride. “Values can decline in very widespread areas, and in most other areas, the value of a home, if any, can remain unchanged over the next three to five years.”
Get full pre-approval of mortgage
Even if price increases slow down in the future, it will not change the reality of the present. Buying a house is not easy. In order for the seller to take your offer seriously, you need to show that you are a serious buyer by scrutinizing your finances and showing you evidence that you have pre-approved the loan. I have.
“It’s a big part of this market,” says Deaton. “We really have to work hard to get the seller to consider it.”
It is also important to renew the pre-approval to reflect today’s mortgage rates. Today, finding a home is so difficult that many buyers have been forced to search for months, during which time mortgage rates have skyrocketed.
“At these current interest rates, we could afford it three months ago, but now we can’t afford it,” says Deaton.
Find a low head loan
For borrowers who can’t afford a home, monthly payments are just one hurdle. The other is to come up with a down payment. A typical US home sale is about $ 375,000, and coming up with a 10% price cut means writing a check for $ 37,500. This is a difficult order in countries where many consumers don’t even have enough emergency savings to pay the unexpected $ 1,000 cost.
However, there is one potential workaround in the form of a mortgage backed by the Federal Housing Agency and the US Department of Veterans Affairs.
both FHA loan When VA loan It imposes less burdensome restrictions than traditional loans. The standard down payment is 20%, but VA loans do not require any down payment and FHA loans have a minimum down payment of 3.5%.
Best for traditional loans Mortgage rates Go to a borrower with a credit score of 740 or higher. However, VA and FHA loans offer competitive interest rates to borrowers with credit scores in the 600s.
McBride warns about these loans: you may feel yourself “upside down” if you don’t withdraw money or make a small down payment, and if the value of your home in your area goes down. Maybe. In other words, if you decide to sell it, you will rent more than the value of the house.
Think about the fixer upper
Older homes can be a good compromise for buyers who are dissatisfied with stock shortages and soaring prices. In a Bankrate survey earlier this year, 21% of respondents will try this tactic.
Of course, buying a fixer upper means you’re working on a project that brings uncertainty. No matter how careful you are in estimating your refurbishment budget, you can expect surprises, especially when material costs fluctuate and construction labor is scarce. Refurbishment experts say it is necessary to anticipate cost overruns in the range of 15% to 20% of the construction budget.
Ann FHA 203 (k) loan Help underfunded buyers afford a fixer upper. With this type of loan, you can combine the purchase price and remodeling costs into one mortgage.
Consider moving to a cheaper area
Many buyers are faced with the harsh reality that they can’t afford to buy in the neighborhood they really want. In some cases, buyers have decided to withdraw from the most difficult markets.
Home prices are skyrocketing everywhere, but prices are particularly spectacular in California. According to the National Association of Real Estate Agents, the average price of existing homes sold in Silicon Valley in the first quarter of 2022 was $ 1.88 million. In San Francisco, the regular price was $ 1.38 million. In Orange County, the median was $ 1.26 million.
The value of homes is skyrocketing in other areas as well. In the Boston and Denver metropolitan areas, prices have skyrocketed above $ 600,000, while the median Seattle region is above $ 700,000.
However, many major metropolitan areas still boast affordable home prices. They include Buffalo (average first quarter selling price $ 202,300), Philadelphia ($ 297,900), Louisville ($ 235,400), St. Louis ($ 216,700), Kansas City ($ 287,400) and Milwaukee ($ 298,800). It will be.
All of these metropolitan areas have more than one million inhabitants. In short, we offer metropolitan amenities at no metropolitan price.Indeed, the widening price gap has pushed up some Home buyers looking for bargains From expensive cities to more affordable places in the country.
According to a Bankrate survey, 27% of adults in the United States consider moving out of state, and 20% say they move far from family and friends. By region, Americans living in the West (33%) and Northeast (31%) want to move out of state compared to the Midwest (25%) and South (22%).
The rise of remote work makes the transition at an affordable price more attractive. Silicon Valley and New York used to attract workers for higher salaries, but many employers now have their employees work from home.
All workarounds for affordable squeeze have drawbacks. This strategy is difficult. You may have to leave family and friends, and the support they provide for childcare and more.
In a Bankrate survey, 26% of Generation Z respondents and 15% of Millennials are less desirable to find more affordable homes, compared to 8% for Generation X and 4% for Baby Boomers. Willing to move to areas that are not.
On the other hand, 29% of Generation Z and 25% of Millennials will be willing to stay far from family and friends compared to 21% of Generation X and 11% of baby boomers.
Another Wrinkle: The Most Expensive Markets Reward Homeowners Through Strong Evaluations. Cheap markets are attractive and affordable, but do not generate housing wealth.
Plan a bid war
Bidding wars are rare in the normal housing market. In today’s housing market, desperate buyers pay thousands or even tens of thousands of dollars above the asking price.
“Enter in the hope that you will be involved in a bidding war,” says Deaton. “It’s not’maybe you will, maybe you won’t’. You will.”
Make a plan so that you don’t get caught up in the emotions of the bidding war. In the midst of a battle, it’s easy to raise your price significantly just to win. Before you enter into a bidding war, set a clear cap on the amount you are willing to offer to your property and stick to it.
Deaton Escalation clause With an offer. This is a bit of a legal term that protects buyers while further increasing competition. Deaton’s standard clause offers $ 501 more than the highest bid, but does not exceed certain amounts, such as $ 200,000 or $ 250,000.
Beware of abandonment of inspection
Hot market led to offer to many buyers Stop inspection As a way to inform sellers of their seriousness. If you need to be exempt from contingencies, be careful not to skip the inspection altogether.
Be sure to reserve the right to perform the test for the purpose of collecting information in order to waive the contingency of the normal test without burns. Also, please inform the seller that you are not responsible for making any necessary repairs. This means that in a highly competitive market, you will not abandon the inspection itself, but the contingency of home inspection.
The idea is that you don’t want to ask the seller to pay for a minor fix, but you don’t want to unknowingly buy a house that costs tens of thousands of dollars to repair a structural defect or mold epidemic. ..