Home Price Growth in February Broke a Record -- and Caused Challenges for Buyers
An increase in home values is great for sellers. For buyers, not so much.
There's a reason prospective buyers have been having a hard time navigating today's housing market. Home values have soared on a national level, and neighborhoods that were once affordable have grown increasingly out of reach for a lot of buyers.
In fact, in February, single-family homes saw a 12.3% annual increase in their sale prices, according to Black Knight. But what makes this significant is that it represents the greatest amount of growth for a given month since 1992.
If you're having trouble buying a home due to inflated home prices, here are some options to look at.
1. Make a higher down payment
Though today's mortgage rates are fairly competitive, they may not be low enough to offset higher home prices. If you're struggling to find a home with monthly mortgage payments you can swing, you may want to consider making a larger down payment than you were initially planning on. For example, if your intent was to put down 20% at closing, but doing so will result in a higher mortgage payment than you're comfortable with, you can see about putting down more money.
Where will that money come from? Well, one place it shouldn't come from is your emergency fund. You should never tap that account for something that isn't an unplanned, urgent expense. Rather, say you have $50,000 in non-emergency savings. Maybe you initially had $40,000 of that earmarked for a home down payment and the other $10,000 for a big vacation. If you put the full $50,000 toward your home, you'll have less to pay each month. Granted, you'll have to skip your vacation, but in exchange, you'll get a home you can enjoy living in every day.
2. Delay your home search
If today's home prices are too high for your budget and comfort zone, holding off on buying could be your best bet. Doing that would let you save up a higher down payment if you don't have that money on hand already. And that could, in turn, give you more buying options.
If you wait to buy, you'll also give the housing market more time to open up. As things improve with regard to the pandemic and the U.S. economy grows stronger, more buyers may opt to list their homes. And once there's more competition on the market, home prices should naturally start to come down.
3. Buy a home jointly with someone else
Given today's prices, you may not manage to swing a home purchase on your income alone. But what if you were to team up with someone else, like a trusted family member or friend, and buy a home together? Suddenly, you're apt to have a lot more options.
Of course, going in on a joint mortgage with someone other than a spouse is a risky prospect. You'll need to really trust that the person you're buying with won't bail on you after you've closed on your home. You'll also need to make sure that person is in a good place financially. Plus, you'll need to figure out what you'll do if one of you wants to sell. And you'll need a plan for splitting the cost and work of home maintenance and repairs. But if you're able to find the right partner, pooling resources is a good way to succeed in today's tough housing market.
The fact that home values have soared is great for sellers. For buyers, it's been a nightmare. The good news, however, is that record-high home prices shouldn't last forever, so if it doesn't work out to buy in the near term, rest assured that it should work out eventually.
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