Americans are rushing to buy homes right now. But should you be one of them?
Sales of previously-owned homes in the U.S. rose 24.7% between June and July to a seasonally-adjusted annual rate of 5.86 million, the National Association of Realtors reported Friday. Not only did the percentage increase represent a record, but the sales volume was the highest the U.S. has seen since 2006.
It’s a stunning turnaround from just a few months earlier when the coronavirus pandemic caused record-breaking decreases in sales as Americans were staying home to avoid getting sick.
To a large extent, the bumper demand for housing is an indication that Americans are aiming to make up for lost time. Many economists believe that what we’re seeing now is essentially a postponed spring home-buying season.
“The housing market is on a sugar high brought on by government stimulus and a pandemic-fueled rush to low density housing,” said Daren Blomquist, vice president of market economics at Auction.com, a real-estate website for foreclosure sales.
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“Prospective buyers will be better positioned for success as homeowners if they understand that this sugar high will not last and make sure their decision to buy is grounded in longer term factors that will affect their ability and willingness to commit to paying down a sizable amount of debt over the next 30 years,” Blomquist added.
But even with home-sales activity reaching record levels, many Americans remain unsure of whether now is the right time to make the biggest financial decision of most people’s lives. The home purchase sentiment index from Fannie Mae
decreased in July, as people’s view of home-buying conditions worsened in tandem with rising coronavirus cases across much of the country.
Here are the factors that experts say you need to consider:
Interest rates remain near all-time lows
From a financing perspective, buying a home is something of a no-brainer right now. And indeed, record-low interest rates helped spur much of the rise in home sales.
“No matter what you’re looking for, this is a great time to buy since the current low interest rates can stretch your spending power,” said Bill Banfield, executive vice president of capital markets at Quicken Loans
“With interest rates in the two’s available, a buyer can afford much more home than they could have just a few years ago.”
While many economists expect interest rates to remain roughly this low for a while, they likely won’t get a whole lot lower. Mortgage rates have fallen in response to the pandemic and the effect it had on the economy. So if a vaccine or treatment for COVID-19 were to be discovered, rates would likely shoot upward.
“There are no guarantees,” said Tendayi Kapfidze, chief economist at LendingTree
“So affordability could decline going forward.”
There aren’t many homes for sale
As the adage goes, you can’t buy what’s not for sale. And right now, well, there’s not much for sale across most of the country.
“Now is a great time to buy because of incredible mortgage rates, but a terrible time to buy because of inventory,” said Ralph McLaughlin, chief economist and senior vice president of analytics at financial-technology company Haus.
As McLaughlin put it, buyers are going to face a tough choice right now: Do you lock in a low rate and settle for whatever’s on the market, or do you wait for your dream home and risk a higher interest rate.
“If you plan on finding your dream home, it’s probably better to wait,” McLaughlin said. “But if you plan on trading up in a few years now isn’t a terrible time, other than low inventory, of course.”
Competition is driving faster sales and higher prices
The tight inventory of homes for sale right now is being met with a large swathe of eager buyers. And that’s a recipe for rising prices and bidding wars.
Median home list prices were up 10.1% year-over-year for the week ending Aug. 15, according to a recent report from Realtor.com. That’s the fastest growth in listing prices since January 2018. Low-interest rates allow prices to rise more quickly.
And homes are coming off the market at a rapid pace. Over two-thirds of the homes sold in July were on the market for less than a month, the National Association of Realtors reported. “That quick-decision environment may challenge some buyers, especially first-timers who are new to the process,” said Danielle Hale, chief economist at Realtor.com.
The good news is that high prices might coax some sellers into the market, said Holden Lewis, housing and mortgage expert at personal-finance website NerdWallet. More inventory on the market would keep prices and competition in check.
Falling prices aren’t necessarily something buyers should hold out for. “If prices fall significantly and inventory rises dramatically, that means the economy has taken a hard turn for the worse and you may have other priorities than housing,” said Robert Frick, corporate economist at Navy Federal Credit Union.
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Where you live and the lifestyle you lead are important
As any real-estate agent will tell you, all real estate is local. So what’s happening one town over or at the national level may have little bearing on what you’ll encounter in the housing market.
“Are you an owner moving from a fast-paced real estate market…to a housing market where the pace is a bit less frenzied? If yes, then this may be a good time for you,” Hale said.
For instance, if you own a home in a suburb of New York City but would like to live closer to the action, say in Manhattan, now may be a great time to buy. A recent Zillow
report threw cool water on the common wisdom that people are fleeing to the suburbs — with some 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 he biggest factor for most people in deciding whether to buy will be their lifestyle. Traditionally, most home-buying decisions revolve around milestones like getting married, having kids or retiring. Millennials are growing their families and reaching their peak home-buying years. And with more people working from home, the need for more space is a factor for many would-be buyers.
If you find yourself in that position, then experts suggest not hesitating. If you have enough in savings to afford the down payment and ancillary costs of buying a home, fetch yourself a low rate and look for a home that suits your needs.
On the other hand, if you are “in between jobs or working in an industry that’s been particularly hard-hit by the recession, it may be a better time to wait,” Hale said.