Federal Reserve Chairman Calls Housing Boom a Passing Phenomenon
Are inflated home prices here to stay? One expert thinks not.
There's a reason prospective home buyers have been walking away discouraged over the past few months. While mortgage rates have been sitting at or near record lows since summertime, home prices have soared. In December 2020, the median price of a home sold was $309,800, which represents a 12.9% climb from December 2019.
Low mortgage rates, coupled with low housing inventory, have fueled a surge in home-buyer demand. But Federal Reserve Chairman Jerome Powell says that the current housing market situation is downright unsustainable, and that the market is likely to calm down in the near term.
In 2020, there were 5.64 million homes that sold, an increase of 5.6% from 2019. The supply of available homes was also at a 22-year low as of December of 2020.
If you've been trying to navigate the housing market and have struggled thus far, it could pay to step back, wait a few months, and try again. You may have a much easier go at it once things do, in fact, cool off.
Why it pays to wait on a home purchase
Limited housing inventory works against buyers in a couple of ways. First, it drives up demand, which results in higher prices. Secondly, it puts buyers in a position where they're more likely to have to compromise on the features they want in a home.
Imagine your target housing market normally has 25 to 30 starter homes available at any given time. If, right now, you're looking at five homes up for sale, you're apt to feel a lot more squeezed. Even if you're looking at a higher-end home, you may not find all the amenities you want if you're limited to just a handful of homes. But if you sit tight, you may have a much easier time finding the right home to buy later this year.
Once buyers start to realize that low mortgage rates are probably here to stay for a while, they're apt to halt the practice of outbidding each other for available homes. That should help bring prices down. Furthermore, once things improve on the pandemic front, more sellers are likely to start listing their homes. That should help open up inventory which will, in turn, help prices come down as well.
All told, there's really no need to rush to buy in today's inflated, overly competitive housing market. So unless you have a personal reason for purchasing a home in the very near future (say, your lease is running out and you can't renew it, and you don't want to sign a new one and have to move several times), it pays to wait until at least spring and see how the market is doing then. Spring is also, historically speaking, a time when inventory tends to pick up across the board. So that alone might be an improvement over current market conditions.
Either way, if you've had a hard time with your home search, you're in good company. And you can also take comfort in the fact that buying a home should get easier as 2021 progresses.
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