Article by Glenn Brunker (https://www.forbes.com/sites/forbesrealestatecouncil/2021/07/21/simple-strategies-to-help-overcome-home-buying-complexity/?sh=149f37c91f63)
The combination of a lack of housing inventory, increased building costs and low rates has created an environment of high home prices and fierce competition among buyers. Despite this being one of the most competitive markets I’ve seen in my 30-plus year career, now is actually a great time to purchase a home. It just may take some persistence, patience and education.
The factors creating the current housing market won’t subside when the traditional spring home-buying season wraps up. There is a lack of equilibrium currently between available inventory and buyers, and there isn’t a short-term fix as home prices continue to soar. CoreLogic’s Home Price Index reported a 13% annual increase in housing prices in April, the largest year-over-year gain since 2006. Even though we’re seeing record year-over-year gains in home sales, April also saw most regions’ existing home sales decline for the third month in a row due to lack of inventory, based on data from the National Association of Realtors. Construction of new homes slowed considerably as builders contended with shortages of labor and building materials. Rising lumber costs have caused the average price of a new single-family home to increase by nearly $36,000. While lumber prices have fallen from their record May 2021 high, strong demand will most likely keep prices above pre-pandemic levels for some time.
Why Now Is The Time To Buy
As long as our nation’s post-pandemic economic outlook remains optimistic, mortgage interest rates should steadily increase in the months ahead. Meanwhile, home prices will continue to increase until demand for homes begins to lessen. This scenario will threaten to box out certain home buyers, especially first-time buyers who don’t already benefit from existing equity in their homes.
As we now know, there is no true definition of “normal” in the home lending space, but there will eventually be a time when a sellers’ or buyers’ market is less imbalanced. Stable interest rates will also indicate a return to normalcy in the years ahead. While 2020 proved anything can happen, a consumer’s purchasing power is likely stronger today than it will be 12 months from now.
Navigating The Market
Our internal data shows that only 33% of first-time home buyers are confident in the home buying process. Education on the steps it takes to purchase a home can help alleviate some anxiety. These buyers need to first determine whether they can comfortably afford a home in addition to their other financial obligations. High rent prices can often make it difficult to save up for a down payment. While a 20% down payment is a great goal and the cutoff point at which PMI is activated, it’s important for borrowers to understand they can get into the home market for less than that, as 20% down can be a potentially large roadblock to many borrowers. Low down payment programs such as FHA and HomeReady, which only require 3% to 3.5% down, can make it easier for first-time home buyers to save. Strategies like temporarily moving home with parents to save on housing costs can also help a would-be buyer build up a cash cushion.
It’s crucial for first-time buyers to remember they are not going to get everything they want in today’s competitive market, so it’s essential to compromise. These buyers should keep in mind that a first home doesn’t have to be a “forever home,” but rather a way to enter the market and start building equity. Considering locations further from urban areas or purchasing a fixer-upper are often less expensive strategies to help buyers enter the market. Working with a well-connected real estate agent who can provide counsel and offer insider knowledge about not-yet-listed homes can also provide an edge to a buyer.
Buyers should also be prepared to pay over the asking price in today’s market. Many homes are priced competitively, designed to spark a bidding war. The better strategy is to make a “best and final” offer right out of the gate. Not making the strongest offer upfront, or including home sale or financing contingencies, can make an offer less attractive. Buyers will need to make realistic offers based on their research of what comparable homes in the area are selling for.
Consumers, lenders and real estate agents need to consider the factors at play in today’s market, and how they may shift, to prepare for the coming 12 to 18 months. It’s a competitive market, but buyers will get more for their money today than they may in a year, as rates are expected to increase as the economy improves. This means buyers will be looking at higher home prices in addition to higher rates in the near future. However, when armed with the right education, some persistence and a bit of good luck, buyers can enter even today’s ultra-competitive market and start building equity they can leverage in the years to come.