by Maurie Backman | April 25, 2021
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There's been a glaring lack of available homes on the market. Should you duke it out with other buyers or wait things out?
Buying a home is no easy feat -- but today's buyers may be struggling more than usual. The reason? Housing inventory has reached a staggering low. There are 40% fewer homes on the market today compared to last year, according to Black Knight. All told, there's a 125,000 deficit in available properties to buy compared to the same time frame in 2020.
Limited housing inventory is hurting prospective buyers in a number of ways. First, it's driving home prices up. In February, the median sales price for a single-family home rose almost 16% from last year, and while mortgage rates are still pretty competitive, for many buyers, they're not low enough to help offset today's higher home prices.
Plus, limited housing inventory is sending many prospective buyers into bidding wars where they duke it out with other would-be homeowners in an attempt to get an offer accepted. Bidding wars are great for sellers -- when buyers outbid each other, sale prices climb even more. But bidding wars are clearly not a good thing for buyers.
Finally, all of this limited inventory is making it harder for buyers today to find suitable homes. This means a lot of buyers are being forced to compromise on key home features or to buy homes in poor condition because there's nothing else out there.
All of this begs the question -- is buying a home today even worth it? Or should buyers sit tight and wait for inventory to improve?
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Mortgage rates sat at or near record lows for much of 2020 (particularly the latter part of the year), but over the past few months, they've risen. Now to be clear, today's rates are still very competitive on a historical basis. And there's a good chance they'll stay that way for much of 2021 rather than rise sharply.
As such, it could pay for buyers to hold off on their home searches for a few months to see if inventory opens up. Chances are, rates won't climb too much over the next few months. But more people may decide to list their homes once the economy begins to recover and the pandemic starts to improve. (Some people may be holding off on listing their homes simply because they don't want strangers invading their space during a major public health crisis.) Once that happens, there should be more inventory to choose from, which could also help prices settle down, especially if bidding wars become less necessary.
Another thing today's buyers should keep in mind is that there are generally fewer homes listed during the winter months than during the spring and summer. Inventory could naturally pick up like it usually does in April, May, and June. And from there, prices could start to drop as the market becomes less tight.
Of course, buyers who find homes they can afford don't necessarily need to wait on making an offer. But those who have struggled in recent months may want to step back from their home search and wait things out. Today's glaring lack of inventory is a challenge even for buyers with a healthy budget, whereas sitting tight for a few months could make the process of buying a home a lot less stressful.
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.
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