The U.S. housing market has been reaching stratospheric levels, with new record-shattering prices recorded seemingly every month. While that’s great news for sellers, it can be discouraging if you’re a buyer. If you’re looking into buying a home, then you may be asking yourself if you should jump into the fray.
What causes prices to rise?
When the U.S. went into lockdown because of the pandemic in 2020, home prices unexpectedly took off to new highs...and have continued climbing. At the same time, the Federal Reserve slashed interest rates, which has inflated home values significantly.
Rising home prices are most often due to an imbalance between supply and demand. Since the Great Recession, construction never fully returned to previous levels. This limited the supply of available homes, and the maturation of the millennial generation (accounting for 32 million people), caused a skyrocketing demand for homes.
This combination could keep home prices high for the foreseeable future, along with interest rates that have been near all-time lows, and strong credit scores among mortgage borrowers.
What you can do if you’re looking to buy.
In virtually every part of the U.S., the housing market is explosive. If you’re currently shopping for a home, here are some ways to avoid overpaying in a seller’s market:
- Don’t pay more than what you believe a home is worth — there will always be another home to buy.
- Consider population growth. The populations of many states are growing, and if you’re buying in one of those states, a hot market can provide more of a cushion than you’d get if you were buying in an area in which populations are decreasing.
- Shop around for a mortgage. With interest rates near record lows, you should shop diligently for a home loan. Get multiple offers to find the lowest; it can save you thousands of dollars over the life of the loan.
- Have a plan. Especially now, with multiple offers, it can be too easy to get into a bidding war and raise your offer significantly. Set a hard ceiling on what amount you’re willing to pay for a property and stick to it.
Buying a home is always an emotional experience, especially if you find one that you really fall in love with. Just remember that if you’re looking to buy now, you’ll be buying at the top – or very near the top – of the market. If you can’t find something without it causing you financial stress, then it would serve you well to practice patience. Sometimes walking away from a clearly overvalued home may be the best thing a buyer can do in this kind of market.