Anyone who has been in the new home market can tell you that home prices have skyrocketed over the past year. In fact, home prices have climbed so high that they hit record highs.
House prices in May were 16.6% higher than in May 2020, according to the S&P CoreLogic Case-Shiller Index. This is the highest rate in more than 30 years. This is also higher than the April reading, which showed a 14.8% year-on-year rise in house prices.
Among the 20 cities tracked by the index, Phoenix, San Diego and Seattle showed the largest gains. This is where they landed:
What’s more, five cities – Cleveland, Dallas, Denver, Seattle and Charlotte – showed the highest annual growth rates on record.
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Is this a good time to buy a home?
Since we just saw house prices hit a record high, the answer to this question may be no. But that is not all. Mortgage loan rates are sitting near historic lows right now – so what buyers today lose when they have to pay more for a home, they can get in the form of competitive interest rates.
But record high home prices aren’t the only obstacle to buying a home today. Housing inventory is extremely limited today compared to the number of homes for sale a year ago. This alone may put some buyers in a position where they will be forced to postpone their search for a home.
The advantage of waiting
Housing inventory may be low, but it is grew slightly in June… And if more home sales continue to appear on the market, prices could start to fall.
The main reason house prices have been so high is that many of the homes for sale in today’s market have come from a bidding war. In a bidding war, two or more buyers try to get their bids accepted by increasing the amount they are willing to pay for the house. Or to put it another way, sellers usually get more than their asking price when bidding wars come into play. This contributed to record house prices in May. But as more homes are listed for sale, bidding may become less common.
Now, the only downside to waiting to buy a home is the loss of the ability to lock in a competitive mortgage rate. But there is good news in this regard as well. Mortgage rates are likely to remain low in 2022, and possibly beyond. They may rise slightly from today’s levels, but they must remain competitive on a historical basis. Buyers who have paused their home searches until, say, early 2022 can benefit from more inventory, lower home prices and attractive mortgage rates.
Waiting for a purchase also has additional benefits. This gives home buyers the ability to set aside more down payment so they can have more options at a time when stock may be slightly better but not plentiful. And it gives them time to work. improving their credit ratingsthat is necessary to qualify for a low interest rate mortgage.