Let’s be honest, no one thought that the housing market would be soaring the way it is right now. Many potential buyers thought that the market would correct itself as the health crisis subsided, but home prices rose over 11% this past year.
Many would be home buyers are started to put their homebuying plans on hold, but before you completely step away from the market, here are a few things you need to know.
Values are Expected to Rise Another 11% Over the Next 12 Months
How long are you willing to wait for prices to drop? Forecasts suggest that the market will only see home prices increase in 2021 as demand remains high and housing inventory remains low. This year is expected to see another double-digit rise in housing prices.
The homes that you’re looking at today may have another $20,000 to $30,000 in value added to them in the next year.
A housing bubble remains a low risk as of right now thanks to stricter lending laws put in place after the 2007 crash. Lenders have made sure that buyers are well-qualified, so there won’t be a surge of foreclosures hitting the market at once.
Building Costs are Even Worse
Builders are trying to get new homes on the market to help alleviate rising prices, but there’s a major problem: prices. Material costs are rising at a pace that has never been seen. Stick-built homes are $40,000 more to build than just a year a year ago as supply issues remain.
Steel structures are also more expensive to build as steel supply remains tight.
Lumber prices are up as much as 340% from a year ago. Constructing new homes is much more expensive, so even if the inventory does improve, with 1-in-4 homes being new, the additional inventory won’t push prices down until material costs come down.
HVAC systems in certain areas and even doors are on backorder causing a major supply crunch.
In short, if you’re noticing all of the new construction activity in your area, don’t expect it to lead to lower home prices.
Mortgage Rates are Low
Mortgage rates are low in an effort to offset the rising cost of homes. You need to have good credit, a job and an adequate debt-to-income ratio for a mortgage, and rates at the time of writing this article are below 3%.
If you’re holding out on a purchase in hopes that rates will fall even further, it’s very unlikely.
The mortgage rates of today are very much in favor of the buyer. You also have the FHA hoping to help more people get in homes with options of as little as 3.5% down on your home. Down payment assistance programs are also available in some locations and can be very beneficial.
If you have the credit history, down payment and ability to buy a home now, do it. All indicators are pointing to a housing market that is only going to continue picking up steam in the next year.
You’ll be missing out on lower prices and very favorable mortgage rates if you plan on buying 12 to 18 months from now.