The U.S. housing market is surging, and 71% of Americans believe that the average price of their home will increase over the next year, according to a recent Gallup poll. Unfortunately, the combination of low interest rates and the ever-shrinking supply of available homes has caused more competition in the market, which has driven up home prices, sometimes astronomically so.
According to Alissa Johns of Small Business Mindset, who is a full-time realtor along with her husband in Northwest Indiana, some prospective homebuyers in their area are offering $50,000-$85,000 over the asking prices. However, those offers are being rejected by the sellers.
Is it worth it to buy now if you live where home values are on the rise? Or should you wait until prices go back down? Here are some pros and cons, backed up by insight from industry experts.
Pro: Low Interest Rates
It’s no secret that mortgage rates are at or near historic lows, but that won’t hold forever. If you’re looking to save on your dream home, now may be the time to buy.
“For the hesitant buyer who is wondering if they should wait to purchase because the home values in their area continue to rise, these interest rates are key in your decision-making process,” said Caleb Spears, a realtor with Spears Group on the Emerald Coast. “Not only is your mortgage more affordable now than it’s ever been in history, but the likely factor to trigger the price decrease you’re waiting on will be the interest rates climbing once more.”
Spears explained that a rise in interest rates will lead to fewer buyers in the market and home prices will go down over time. However, this situation will only greatly benefit cash buyers, not those wanting to finance a home. “If the market drops 10%-15% but your interest rate climbs back to 2014 levels of 4.5%, then you’ll find that the monthly mortgage you’re paying could actually be even higher for a home that costs less,” Spears said.
Con: The Competitiveness of the Homebuying Market
Even though low interest rates can save you money, you still have to deal with the aggressive competition in the homebuying market.
“Multiple offers, having to jump on the latest listings, and the heartbreak of not getting an accepted offer on a great home are all part of the current market,” said Jeffrey Loyd, principal at Mortgage Acuity.
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To be ready to make an offer on the newest listings, Loyd suggests knowing what’s non-negotiable in a home and what you can work with.
“Successful buyers have a strong understanding of the housing types, layouts and amenities available in their market,” he said. “It’s important to see past any minor cosmetic issues a home has — walls that can be repainted, or floors that can be sanded — to find a great house to buy in a great neighborhood with strong schools. Once [homebuyers] can walk into a home, immediately understand the floorplan, the flow of the home and what is important to them, they can jump on the freshest listings to make a fast offer.”
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Con: You May Have To Take Risks To Get the Home You Want
In the race to buy a home in this competitive market, you may find yourself making decisions that could come back to bite you, so proceed carefully.
“Because demand is outpacing supply you may be expected to overpay or wave an inspection in order to win a bidding war,” said Luke Smith of We Buy Property in Kentucky. “The market is hotter than ever, so one has to go above and beyond in order to convince a seller. Making an emotional purchase decision is usually not the wisest of actions.”
Ed Frowley, the owner of We Buy Houses in Western Mass offers a bit more insight into these cons of buying a home right now:
“Current buyers are paying way over what comparable homes have sold for in the past six months,” Frowley said. “Buyers do not want to be in a situation where they paid so much for the home that when they look to sell in the future they are most likely going to lose money. Also, a buyer may waive an inspection because they want their offer to be stronger. This could lead to serious problems with the property that will make the buyer pay for expensive repairs.”
The Final Answer
So what’s the final answer to the question of should you buy now or wait? Frowley sums it up nicely: “While it is a good time to buy, a buyer needs to buy smart.” And according to Frowley and other industry experts, being smart means knowing what you want in a home so you can immediately make an offer on a new listing, avoiding waiving a home inspection just because you think it will strengthen your offer and passing up a home that will require you to make an offer so high that you may never recoup your investment.
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Last updated: June 15, 2021