by Maurie Backman | Published on July 29, 2021
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Home prices have soared across the country. Here's what buyers should know.
It's been a real struggle for many home buyers to find properties to purchase, and the reason largely boils down to low inventory and inflated prices. New data from the Federal Housing Finance Agency (FHFA) shows just how inflated property values are.
In May, home prices rose 1.7% from April's level, according to the FHFA House Price Index. But compared to May of 2020, home prices are up 18%.
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Because mortgage rates have been sitting at competitive levels since mid-2020, there's been a rush on the part of buyers to go out and purchase homes. The problem, though, is that there hasn't been enough inventory to go around.
Whenever there's a short supply of a given commodity and high demand for it, prices have the potential to climb. And that's exactly what's happened in the housing market.
A lot of buyers are finding that neighborhoods they could once afford are now out of reach. Other buyers are stretching their budgets just to have a shot at owning a home. It's a tough situation all around, and until housing inventory really picks up, things are unlikely to change.
If you've been searching for a home for months and haven't been successful, you may want to consider hitting pause on your efforts and trying again later on in the year or even waiting until 2022. If you give more sellers time to list their homes so that inventory opens up, you may find that property values start to come down.
Now, you may be worried that delaying your home search will cause you to miss out on today's low mortgage rates. But actually, there's a good chance rates will stay low for several years. So don't let your fear of a higher rate cause you to settle today for a home that's not the right fit.
Keep in mind, too, that delaying your home search will give you more time to save up for a down payment. And the more money you're able to put down at closing, the lower a mortgage you can take out. Also, having a higher down payment gives you more options in case inventory really doesn't open up all that much over the next six months or so.
If you are going to move forward with buying a home today, prepare to pay a lot more than you normally would. And also, make sure you really can afford the home you're buying. As a general rule, you shouldn't spend more than 30% of your take-home pay on housing, and that includes not just your mortgage payment, but also other monthly expenses of home ownership, such as:
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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