House hunting is no time to lose your head.
No matter where you live, if you're trying to buy a house, you will likely pay more than you would have just one year ago. The median home price in March 2021 reached $370,000, up 15.6% over the previous year. And metro areas have experienced an average price jump of 12.1% compared to last year.
As you're shopping around for a new home, you'll want to make sure to avoid getting so caught up in the buying frenzy that you lose your cool and find yourself in an irrational bidding war. The last thing you want to do is overpay for a house. Here we'll cover some ways to keep calm, even when the housing market is over the top.
According to a BBC report, auction fever may be to blame for why we get involved in bidding wars. The report notes a study by researchers from Princeton University. When participants of experimental auctions found themselves bidding against a computer program, they did not pay much more for an item than it was worth.
However, when these same participants thought they were bidding against other live humans, rational behavior went out the window, and bids far exceeded the value of the auctioned item. In short, when more than one party is involved, auction fever can take over.
Results confirm that competition has a way of bringing out our irrational side. Understanding how auction fever works can help you keep your head, even in a competitive buying environment. If you're overbidding because you want to "beat" someone else or because you're tired and need the house hunt to be over, step back. History has shown that the housing market is rarely static for long.
In other words, what is now a seller's market will eventually become a buyer's market. Although we don't know when that will happen, we do know that the day will come.
The only budget that matters is yours
Before looking at houses, do these four things:
- Use whatever budgeting method works best for you, and make sure you're ready to buy a home.
- Ask yourself, "How much house can I afford?" A mortgage calculator can help you come up with a monthly payment. Just make sure that leaves money for emergencies and unexpected bills.
- Get pre-approved by a mortgage lender.
- Vow to stick to that budget, no matter how fevered the market may be.
There are at least three advantages of sticking to your budget:
- Any property you buy is less likely to leave you underwater -- owing more than the house is worth once the market has cooled.
- Waiting for a home you can afford means not having to worry about whether you can make your monthly mortgage payment and allows you to enjoy your life.
- The less you pay for a home, the more you will have to put toward upgrades to increase the home's value and your equity in the property.
Own your feelings
It's natural to feel frustrated when you can't find a house that fits your needs. It's okay to be disappointed when you don't land the house of your dreams.
Take time to acknowledge what you're feeling and to be kind to yourself. That may mean taking a week or two away from house hunting, simply for the mental break. Go for a hike, meet friends for a picnic, or do something else you find enjoyable. Rather than allow the stress of buying a home to build up, find ways to let yourself off the hook.
Take the long view
You may not find the right house this time around, and that's okay. If buying a house means spending more than you should or ending up in an area that's not good for you, why not wait?
If you already own a home, stay there until moving makes more sense. If you're a renter, another year or two won't hurt in the long run. The right time to buy will come -- even if it's not today. And by that time, you'll be even better prepared. You're likely to have a larger down payment and a stronger sense of the life you want to live.
As big a deal as we may make of homeownership, the homes in which we reside do not determine the quality of our lives. No matter where you live, continue to do the things that bring you joy and develop relationships that make you happy. Whether you live in a tiny loft or on a sprawling farm in the country, you take your happiness with you.
When it is time to buy that new home, make sure you're ready. Our home buyer checklist has you covered with everything you need to do to prepare for the home-buying process.
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