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by Maurie Backman | Published on Nov. 27, 2021
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Home prices keep rising, and more buyers may be struggling to keep up.
There's a reason so many buyers have been struggling to purchase a home this year. Property values keep climbing and those increases don't seem to be tapering off.
In October, the median price of an existing home sold was $353,900, according to the National Association of Realtors. That's an increase of 13.1% compared to October 2020.
A big reason home buyers today are facing high prices has to do with limited supply and increased demand. At the end of October, there were 1.25 million homes available for sale. That's a 12% decrease compared to last October, when real estate inventory was already low.
All told, the housing market is now looking at a 2.4-month supply of available homes. Generally, it takes a 5- to 6-month supply of homes for sale to create a housing market where neither buyers or sellers have the upper hand. Right now, sellers are the clear winner in this regard.
Not shockingly, first-time home buyers in particular have had a tough time breaking into the market. First-time buyers represented just 29% of home sales in October 2021, compared to 32% in October 2020. But historically, first-timers represent around 40% of home purchases.
Generally speaking, your monthly housing costs, including your mortgage, property taxes, insurance, and any other predictable expense, like HOA fees, should not exceed 30% of your take-home pay. There's some wiggle room with this formula, such as if you live in a city where transportation costs little to nothing. But for the most part, sticking to that 30% threshold will increase your chances of being able to keep up with not just your housing costs, but all of your bills.
If you're not sure how much house you can afford based on this formula, use a mortgage calculator to crunch some numbers. See what home prices are averaging in the area you're looking to buy, and then input that data to see what monthly payment you'll be looking at based on your down payment and mortgage interest rate.
If you're not sure about the latter, you can use today's average rates as an estimate. Just keep in mind that if your credit score is great, you might snag a lower rate, and if your credit score could use some work, you might get stuck with a higher rate.
If you find you can't swing a home today, you're in good company. And in that case, waiting could pay off.
Once more housing inventory hits the market, home prices could start to come down, so sitting tight could work to your benefit. Also, waiting to buy could mean giving yourself more time to come up with a larger down payment. That could, in turn, make it possible to borrow less -- and shrink your mortgage payments to the point where you're within that ideal 30% threshold.
Today's housing market is a hard one for many buyers to navigate. If you can't afford to buy based on current prices, you're probably better off pausing your plans than pushing yourself beyond your financial comfort zone and hoping for the best.
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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