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Just when you thought home prices couldn’t climb any more, well, they have. In July, home prices rose a whopping 19.7% from the previous year, according to the S&P CoreLogic Case-Shiller Index. That’s up from 18.7% the previous month, and it also represents a record high for the index.
For sellers, this is clearly great news. But it leaves buyers in a pretty challenging situation.
The struggle to buy
Today’s home buyers face two challenges that are heavily linked. First, there’s a lack of available homes on the market. Secondly, home prices are soaring.
It’s largely the first situation that’s causing the second. Whenever a given commodity is in short supply, its price tends to climb — think back to Economics 101.
What’s compounding things in today’s housing market is the fact that mortgage rates have been sitting near historic lows all summer. So buyers have been even more motivated to duke it out over limited inventory so they can lock in affordable home loans before those rates start to climb.
Should you try to buy a home this year?
Unless you really have a very flexible budget, buying a home this year is something that may prove difficult. Housing inventory has increased slightly over the past few months. But the market is still down millions of homes compared to the number needed to meet buyer demand. And until inventory picks up, home prices are likely to stay high.
What this means is that if you’ve been struggling to find a home that you can afford, you may want to postpone your search until 2022. At some point next year, more homes could hit the market, which could give you more options to choose from and, just as importantly, drive prices downward.
Even if you can afford a home at today’s inflated prices, buying one may not be the smartest financial move. Say you decide to purchase a home for $500,000 that you know would normally sell for $400,000. You may be able to comfortably afford your mortgage payments based on that higher purchase price. But what if your circumstances change and you need to move in a few years? At that point, you may only be able to sell your home for closer to $400,000.
In fact, if you’re currently in a stable housing situation — say, you own a home and are looking to upsize, or you rent but have the option to renew your lease on a month-to-month basis — then it could pay to stop looking for a new home now and resume your search in six months’ time. We may see more homes hit the market at the start of the spring season, which is when inventory tends to pick up in general.
Many sellers may be hanging on to their homes now due to general economic and pandemic-related uncertainty. If the economy continues to improve and the COVID-19 outbreak gets less severe, we could see an influx of homes get listed in the spring of 2022. Mortgage rates will likely stay low through that time, so waiting to buy is a move that might really pay off in the long run.
A historic opportunity to potentially save thousands on your mortgage
Chances are, interest rates won’t stay put at multi-decade lows for much longer. That’s why taking action today is crucial, whether you’re wanting to refinance and cut your mortgage payment or you’re ready to pull the trigger on a new home purchase.
Our expert recommends this company to find a low rate – and in fact he used them himself to refi (twice!).
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Read More: Home Prices Hit Record High, Soar 19.7%