by Maurie Backman | Published on Sept. 26, 2021
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Sky-high home prices may finally be keeping buyers away.
There's a reason many potential buyers have struggled to purchase a home this year. Limited inventory and low mortgage rates have fueled a surge in buyer demand. That, in turn, has driven home prices way up, to the point where many buyers just can't afford them.
In August, the median price of a home sold was $356,700. That represents an increase of 14.9% compared to August of 2020.
But while home prices may be rising, the number of homes sold is declining. Sales of previously owned homes dropped 2% in August compared to July, according to the National Association of Realtors. Plus, sales declined 1.5% from August of 2020. That's the first year-over-year decline in 14 months.
Given where home prices are sitting today, it's not surprising to see sales numbers drop. Buyers can only stretch their budgets so much to buy a home, and it could be that many are finally coming to the realization that it's not worth going overboard on a mortgage just to take advantage of today's low rates. Or, to put it another way, many buyers are realizing that while today's mortgage interest rates may be very competitive, they're not necessarily low enough to make up for the astronomically high home prices.
On the one hand, the fact that buyers are pulling back on home purchases may prompt you to do the same. On the other hand, fewer buyers also means less competition. So it may, in the coming months, get a little easier to buy a home, especially if inventory keeps getting added on a slow-but-consistent basis, as we've seen happen recently.
These days, the number of offers on a typical home is 3.8, compared to 4.5 a month ago. Fewer offers mean fewer bidding wars for today's buyers to deal with.
So where does that leave you as a potential buyer? Well, you could really go either way. You could decide to move forward with your home search in the hope that you'll have fewer buyers to compete with. Or you could sit tight and wait for more homes to hit the market, which may have to happen before home prices come down in a meaningful way. We may not see a significant uptick in inventory until next year, though.
Ultimately, your decision should boil down to the options you think you have in today's market. If you're seeing homes you like that fit into your budget and you're in a good position to qualify for a low interest rate on a mortgage, then it may be worth trying to buy this year. But if you're having a difficult time finding a home you can comfortably afford, then you may want to pause your plans.
While mortgage rates are very attractive today, there's a good chance they'll stay low well into 2022 and even beyond. If you wait things out, you may reach a point where you're able to pay less for a home than you would today.
Your mental health should also play a role in your decision. A fruitless house hunt can be a frustrating thing to deal with, and bidding wars can be extremely stressful. If your lack of progress on the home search front is impacting your state of mind, then that alone could be a good reason to bow out of the housing market and try again in 2022.
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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