U.S. Home Prices See 17% Annual Increase in May, Reports Freddie Mac

Property values keep climbing. Where should that leave you as a buyer?

There's a reason buyers in today's real estate market are growing increasingly frustrated. Home prices have soared in recent months as low mortgage rates and limited inventory have caused a spike in buyer demand. Now, those looking to purchase homes are increasingly getting priced out of neighborhoods they could once afford, and they're also losing homes left and right in bidding wars.

To get a sense of just how high home values have climbed, in May, housing prices increased 17% compared to May of 2020, according to the Freddie Mac House Price Index. That's the highest 12-month increase in the history of the index going back to 1975. It also represents a higher increase than what the real estate market experienced during the mid-2000s house price boom.

But with home prices being so high, it really begs the question -- should buyers continue looking? Or at this point, are buyers better off putting their house hunting on hold and waiting for prices to come down?

It could pay to wait

The basics of supply and demand tell us that when any given commodity is in limited quantity, to the point where demand is booming, prices will rise. That concept is certainly being upheld in today's housing market. While housing inventory did increase slightly in May, we're nowhere close to pre-pandemic inventory levels, which means today's buyers are apt to struggle.

That even extends to buyers with a healthy budget to work with. These days, having the funds on hand for a robust down payment means very little when buyers are so desperate for homes that they're willing to pay cash for them.

Because the situation has gotten so extreme, at this point, it could really pay for buyers to sit tight and put their home purchase plans on hold until more inventory hits the market. There's a danger in overpaying too steeply for a home. If a given buyer spends $500,000 on a house right now that would normally only command $450,000, and then needs to sell that home two years down the line, that buyer risks taking a loss.

Not only that, but if buyers stretch their budgets too heavily in an effort to afford today's home prices, they could end up with mortgages they struggle to keep up with. And that, in turn, could put them at risk of losing their homes.

At this point, mortgage rates are likely to stay low for a while, so it pays to give the housing market a chance to catch up to demand. Buyers who back down and resume their house hunting in the late fall or early winter may have more luck than those who insist on forging forward this summer.

When will things get better?

Home prices have clearly risen a lot over the past year. How long will it take them to come back down? That, we don't know. But what we do know is that now's just not a good time to buy a home, and so it could make financial sense for a lot of people to wait.