Home Price Growth Reached a New High in August

Two people standing in the front yard of a house and speaking with their realtor.

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With housing prices going nowhere but up, buyers are apt to continue struggling.

It's no secret that property values have risen on a national level over the past year. But the extent to which they've risen may shock you.

In August, home prices rose 18.1% from the previous year, according to the CoreLogic Home Price Index. That's the largest increase in the 45-year history of the index.

These sky-high prices are putting many buyers in a tough spot. Those on a limited budget may be struggling to find homes that are manageable financially.

If you've been having a difficult time finding a home you can afford in today's market, you may be wondering whether it pays to continue looking or put your home-buying plans on hold. And based on where housing prices stand today, the latter could be your better bet.

Why holding off on buying could pay

A big reason why home prices are so inflated is that inventory has been seriously lacking across the housing market. Since there aren't enough homes to meet buyer demand, those interested in owning have frequently engaged in bidding wars, which commonly drive up home prices.

Given that the weather is about to take a turn for the cold, it's unlikely that we'll see a huge surge in home listings during the tail end of 2021 or the beginning of 2022. And until the inventory problem resolves itself, home prices are likely to stay high.

It's for this reason that it could pay to wait on buying a home. This especially holds true if you're in a stable housing situation where waiting to purchase a place of your own won't cause you undue stress. For example, if you're currently renting on a month-to-month lease that simply requires you to give your landlord 30 days' notice, you may want to stay put and wait for the housing market to cool off a bit.

Will mortgage rates stay low?

A big reason why so many buyers have been clamoring for homes despite a recent uptick in prices is that mortgage rates are sitting near historic lows. Right now, buyers with great credit may qualify for unbelievably low rates that make their monthly mortgage payments more affordable.

But buyers should know that mortgage rates are likely to stay low well into 2022, and quite possibly beyond. And so those who are struggling with inflated home prices may be better off sitting back and waiting to buy.

Remember, if you pay a premium for a home today, that higher price could offset the savings you reap by locking in a low mortgage rate. At the same time, if you buy a home at a high and wind up needing to sell it in a few years, you could set yourself up for a financial loss.

Today's home prices aren't sustainable in the long run, and once more inventory hits the market, they're likely to start coming down. In a few years, we may find that home values largely erase the rapid gains they enjoyed over the past year. In that regard, buying a home right now is a risk. Unless you're really sure you won't be selling your home anytime soon, you should strongly consider waiting to purchase one.

Proceed with caution

If you do decide to move forward with your home-buying plans despite inflated prices, make sure you're not signing up for a mortgage that will cause you to spend more than 30% of your take-home pay on housing expenses. You can use a mortgage calculator to run the numbers and see what monthly payments you're in for based on different home prices, mortgage rates, and down payment amounts.

Taking on too high a mortgage could wreck your finances. And while you may be tempted to buy a home today, it's just not worth putting yourself in that position.

Our Research Expert