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The median price of existing homes in the United States hit $313,000 in October. Depending on house prices in your area, that might sound like a lot of money or a bargain. But regardless of how affordable it seems to you, it's a significant increase on last year.
In fact, according to the National Association of Realtors (NAR) data, the median home price has risen almost 16%, from $271,100 in 2019.
The recent increase in home prices is part of a larger trend. October was the 104th month straight in which the median home price increased year over year. This rapid rise in the price of real estate isn't a localized phenomenon either -- prices have increased in every region of the United States.
The big question you may be asking is, why? Specifically, why is this happening in the middle of a pandemic when unemployment levels are high and there's lots of uncertainty about if, or when, future economic shutdowns will occur?
This is why home prices are so high right now
There's a very simple reason home prices are soaring even during the COVID-19 recession. The demand for homes is very high, and there are limited properties available for sale.
Buyers are desperate to purchase a limited number of properties. As a result, sellers can list their homes at high prices. Some sellers will receive multiple offers, and some buyers will offer even more than the asking price.
High demand for housing is driven by a couple of factors. First and foremost, mortgage rates have hit a 50-year low. In the past half-century, there has never been a better time to secure a home loan. While lenders have tightened credit standards, Americans who can qualify are scrambling to obtain these loans. And with such low rates, taking out a mortgage is much more affordable. The lower monthly payments make ownership more accessible to would-be buyers.
Many people are also looking for vacation homes or want to upgrade to larger properties. As remote work becomes the norm due to COVID-19, workers are free from the shackles of their desks. No longer constrained by location, they are flooding housing markets away from large cities. And those who are stuck at home want properties that provide them with more space -- especially if they also have children schooling at home.
All these factors have increased demand, but there's been a drop in the supply of properties. NAR's data shows a 19.8% reduction in total housing inventory compared with a year ago. Some potential sellers are concerned high prices mean they won't be able to upgrade to a new home. Others are afraid to upsize because COVID-19 has made their jobs uncertain. Still others are concerned about the safety of listing a home and allowing potential buyers to visit during the pandemic.
Should you buy in a seller's market?
There are very few homes available and many buyers who want to purchase them. Sellers can drive hard bargains as buyers who've struggled to find a place may be willing to pay higher prices.
Before you become one of those buyers, it's important to assess whether you can afford the cost of the home, even at today's low rates. You'll also want to consider whether the cost of the house seems fair, given local market conditions and the possibility you could be buying in a bubble.
Finally, you should assess your goals for homeownership. If you plan to stay put in the property for a long time, paying a slightly elevated price might not matter so much. You can spread the impact of these crazy market conditions over a number of years -- especially if you also get approved for a great mortgage rate. Weigh up the pros and cons of buying in a seller's market against the advantages of securing an extremely affordable home loan. And bear in mind that neither the low rates nor the high home prices will last forever.
