To say that today's housing market is a tough one to crack would be an understatement. In January, the median existing home sales price reached $350,000, representing an annual increase of 15.4%, per the National Association of Realtors.
Furthermore, as of the end of 2021, inventory of unsold existing homes fell to an all-time low of 860,000, representing just 1.6 months' worth. For context, a healthy housing market where neither buyers nor sellers have the clear upper hand generally takes more like four to six months' worth of inventory.
Because these are such tricky times for buyers, it's important to approach the process of purchasing a home with the right strategy. And that means avoiding these three major pitfalls.
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1. Spending more than you can afford on a home
Because home prices are so inflated, you may be tempted to push yourself to spend more than you can afford to snag a place of your own. But if you take on too much house, you might struggle to keep up with your ongoing mortgage payments -- to the point where you risk losing your home or falling behind on other bills.
Another issue with overspending on a home? If property values start to drop and you find yourself struggling to keep up with your housing costs, you might run into a serious problem if you need to sell. Therefore, you're better off limiting yourself to a less expensive home -- or pulling out of the market temporarily and waiting until property values begin to fall if today's prices just aren't within reach.
2. Waiting for mortgage rates to come down
Mortgage rates have been higher during the first 2.5 months of 2022 than they were at any point in 2021. But if you're thinking of holding off on a buying a home until rates drop, you may end up waiting a very long time.
The Federal Reserve has already announced its first rate hike of the year, with more to follow. Now the Fed doesn't set mortgage rates, or any consumer borrowing rates for that matter. But when the Fed raises short-term borrowing rates for banks, it tends to result in an uptick in mortgage rates. And so if anything, we should expect mortgage rates to climb in the course of the year, not fall.
That said, while today's mortgage rates may seem high compared to what borrowers were able to enjoy in 2021, from a historical standpoint, they're still fairly competitive. So if anything, it pays to lock in a home loan sooner, not later.
3. Getting sucked into a bidding war
Whether you're buying a home as a real estate investment or to live in yourself, it's easy enough to fall in love with a given property and land in a bidding war. But that's not the sort of battle you want to fight at a time when home prices are already so inflated.
Once you enter a bidding war, you can expect to end up spending more on a home than what you've offered on it initially. And given that baseline home prices are high, you could land in a situation where you're overpaying a lot for a property -- and risk losing money down the line in the event of a sale.
It's not easy to be a buyer in today's housing market -- far from it. But if you're eager to purchase a home, be sure to avoid these mistakes at all costs. Doing so could spare you from losses or prevent a scenario where you're suddenly struggling financially.
