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With the U.S. economy in a recession, you’d think home prices would be on the decline. But that’s the opposite of what’s going on in the housing market.
The median price of existing home sales in August hit a record high of $310,600, according to the National Association of Realtors. Furthermore, it took just 22 days on average to sell a home in August. How’s that for defying the odds?
Why are home prices soaring?
The reason sellers command such high prices for their homes today boils down to low supply and high demand. Many sellers have held back on listing their homes during the coronavirus pandemic. As a result, there’s less inventory for buyers to choose from, so those who want to purchase homes must pay a premium. Many buyers are engaging in bidding wars, thereby paying well over sellers’ asking prices.
Of course, the rush to buy homes stems from record low mortgage rates. For much of the summer, the average 30-year fixed mortgage held steady below 3%, while the average 15-year loan was available at under 2.5%.
Unfortunately, all of this poses a challenge for buyers. Those who rush to purchase a home in today’s tight market risk getting taken for a ride by sellers. Those who wait, however, risk losing out on the current competitive mortgage rates. It’s a tough call, even for buyers who have been through the process before.
Should you buy a home today?
If you’re thinking of buying a home, ask yourself these key questions:
- Can I afford today’s higher prices? If you don’t have the savings for a down payment on a costlier home or the income to keep paying a bigger mortgage, you may want to wait.
- Is my credit score in good shape? If your credit is just average, you won’t snag the great rates buyers are clamoring for.
- Am I tied into a restrictive housing situation? If you’re in the middle of a lease, you may not be able to break it, and your seller may not be willing to delay your closing. Sellers normally take steps to accommodate buyers, but in today’s market, they don’t need to.
- Are the homes in my price range in good shape? It’s bad enough that you’ll need to pay a higher price for a home today, but if that’s the case, the last thing you need is a property that requires serious work.
Mortgage rates may be enticing right now, but higher home values make it difficult for many people to buy. It could therefore make sense to sit tight for a few months. Pay attention to how mortgage rates trend, and see if there’s more inventory or less competition later in the year or in early 2021. Waiting does mean risking receiving a higher interest rate on your mortgage. But rates could hold steady or drop even lower in the coming months, in which case sitting tight may not hurt you at all.
Today’s Best Mortgage Rates
Chances are, mortgage 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. Click here to get started by scanning the market for your best rate.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.