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You’re interested in buying a home, but due to the crazy uncertainty of the current real estate market, you’re not sure if now is the right time. Since this is likely one of the biggest purchases you’ll ever make, you’re taking the time to make an informed decision.
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As of March of this year, the median sale price of a home in the U.S. is $400,706 – actually down 3.3% from this time last year. Sounds good, right? Well, that number was $303,201 in March 2020 (meaning 32% two-year growth). Perhaps unsurprisingly, 441,631 homes were sold during the month, marking a -20% year-over-year decrease.
Clearly, the market is in a strange place – demand has fallen significantly, but prices have not yet fallen to meet the reduced demand. This can make it hard to decide whether to keep renting or buy a home of your own because you don’t want to overpay if prices will soon be trending downward.
“The challenge right now with the housing market is that prices are still high, and mortgage rates are on the rise. House affordability is down, which makes renting more attractive in many areas,” said Jay Zigmont, Ph.D., CFP® founder of Childfree Wealth.
Jenna Lofton, a New York City-based stock trader and investor said, “I generally recommend people buy or rent depending on what they value most — security or flexibility.”
In terms of not wanting to overpay for a house, she said the decision to buy or rent depends on where prices are going. Lofton believes buying might be a good idea if you’re financially secure and want a stable housing situation, but warned not to forget about maintenance expenses and other costs associated with homeownership.
“Renting makes sense for people who worry about their financial security,” she said. “If the market changes, then they won’t be stuck with something they can’t afford, which is [a] valuable peace of mind.”
Fear of overpaying for a house in the current real estate market is a very valid concern, so Cynthia Kellogg, a San Francisco Bay Area-based real estate agent with Avenue 8, said to think about how long you can see yourself living in it. In most markets, she said real estate is a long-term investment.
“If your answer is less than five years, depending on your market, then renting might be a safer option,” she said. “But if you’re planning on staying in a home for more than that, your home will likely appreciate and you will make money when you go to sell.”
However, if you’re looking to invest in the real estate market and you have the financial ability to do so, she recommended buying and holding onto the property for as long as you can. “There’s no such thing as timing the market,” she said. “The only real thing that matters is your time in the market.”
To avoid overpaying, she advised looking for properties that have been on the market for longer than average and working with a real estate agent who can help you find a great investment.
“This might mean you make some trade-offs,” Kellogg said. “Perhaps buying a bit outside your desired neighborhood or being willing to commit to some work and potential home improvement projects.”
Clearly, the decision to start shopping for houses right now or continue renting for a while depends on your unique circumstances. The best choice for you might not be the same as a friend or family member in the same predicament.
It’s worth noting that while interest rates have risen sharply – 6.3% for a 30-year fixed-rate mortgage as of April 25 (a massive increase from the all-time low of 2.65% in January of 2021), the average rate since 1971 is 7.75%, implying that rates aren’t likely to go up that much more.
If you’re ready to put down long-term roots in a home and you feel like you can afford a sale price that might be more than what you originally expected, now might be a great time to buy. On the other hand, if you’re not sure you’ll live in the house very long or feel uneasy about spending more than planned on a home, it might be better to keep renting for at least a while.
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