FIRST TIME HOMEBUYERS - DO THIS NOW!!
Housing prices are skyrocketing and it's become a national crisis for potential first-time home buyers. The median selling price for a home in November was $416,900 nearly 25% more than it was in February 2020.
With inventory dropping below 300,000 nationwide in January, there is no escape from rising prices and cutthroat bidding from prospective home buyers.
Miami has experienced a 19% year-over-year increase in home prices; Denver 18.6%, San Diego 22.4%, and Phoenix 30.2%. Rent is no picnic either with rents in Miami going up over 50% in a year and 30% or more in Jacksonville, Memphis, Tampa, San Diego, and Las Vegas.
With new construction booming, there is relief over the longer term. But with homebuilder dealings with rising prices on land, labor, and lumber, homebuilders are catering towards the more affluent with only 1 in 5 new homes sold below $300,000.
Generally, rising mortgage rates slow down the pace of home buying. But with inventories so low, demand so high, and construction moving at a slower pace, there are still plenty of reasons to think that rising rates may not have their historical effect for a while.
Most experts are predicting continued rising prices though slower than years past. For example, Doug Duncan, the Chief Economist at Fannie Mae is forecasting about a 7%-8% increase in prices in 2022 and a 3% growth in inventory. He acknowledged the slowdown mostly due to a reduction in easy money conditions that contributed to the dizzying rise in prices.
So what can homebuyers do?
Firstly there's acknowledgment. As we head into Spring the pace of home buying goes up as people emerge from their winter hibernation. So know that competition is going to be fierce and you are better off not falling in love with one home.
Secondly, be prepared to stay in the new home for 7 to 10 years for it to be worth your investment. Real estate investing continues to be a great diversified investment source, however with higher prices the duration of the holding for it to be worthwhile and to also offset the eventual normalization once supply catches up also goes up.
Thirdly, don’t mess around with your real estate agent. You want someone that’s knowledgeable and in your court. You need someone familiar with what you are looking for, who is well connected, are a great negotiator, and are creative. In other words, stays away from those that just got their real estate license or are doing this as a side hustle.
Fourthly, get your house in order. Get your pre-approval letters ready. If you are in a home and can leverage it to make a cash offer on a new place, that’s always good as it facilitates a faster close.
Fifth, be creative. Be willing to pull the emotional strings. Send a letter on why you are a great buyer.
Sixth, know your limits. If you can handle a fixer-upper, that’s good. Remember the fundamentals of real estate still matter. Fixer-uppers are generally a turn-off for most. So if you are willing to do the work or have the work done over time, it could open up the realm of possibility.
The housing market continues to get more and more unaffordable for first-time home buyers. But there's no reason for the market to crash either. Remember the people that are buying homes in this market don’t have a credit problem.
Also while interest rates are slowly rising, the fact of the matter remains that on a historical basis it's still at very low levels.
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DISCLAIMER: The opinions expressed in these videos are not meant to be financial advice. Always consult with your financial advisor and do your own due diligence as individual facts and circumstances may vary.
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