With spring market comes an increase in buyers, thus more competition. This is especially noticeable in a market where the housing inventory is already low. But keep in mind there are benefits to being a buyer that give you good reason to stick with your home search.
The truth? This is a market where you may need to write multiple offers before you get your home. Once again, and despite the increase in mortgage interest rates, we are seeing homes selling in bidding wars for thousands over asking price, inspection contingencies being waived and buyers providing sellers “gap insurance” to protect any potential difference between the purchase price and the appraisal value. The Twin Cities market is still a sellers’ market, just not to the degree that it was last year. With the increase of interest rates, the number of homes on the market rose slightly over last year. The March 2023 supply inventory compared to March 2022 showed an increase of 27.3%. Even with the increase in available homes, there is only a 1.4 months supply of homes for those looking to buy a home. Typically, 4-6 months of supply is considered a balanced market.
Our team sometimes hears buyers say I’m going to wait until there is less competition. Doing nothing may be a lot more costly than doing something. Some buyers can no longer afford what they did last year and are having to adjust their expectations in a home and other buyers are not willing to accept that the low interest rates that were available are not only gone but may never be available again. Still others remain convinced we are in a “housing bubble” similar to 2007-2008 and will purchase a home once prices come crashing down – despite volumes of evidence disproving this belief (and addressed in a number of our past blogs).
Let’s learn from history. In the late 70’s, mortgage interest rates were around 10% and in the early 80’s went up to 18%. Buyers still purchased homes despite these high rates. A few years later, when rates came down they refinanced their mortgage! Throughout the decade, home prices continued to increase and by 1990 those buyers had significant equity in their home. Tenants who waited for mortgage rates to go down didn’t see any savings because the price of homes had gone up and even more importantly, they missed the opportunity to build equity in their home through amortization and appreciation.
The Long-Term Benefits Outweigh Short-Term Challenges
Owning a home grows your net worth and since building that wealth takes time, it makes sense to start as soon as you can. If you wait to buy and keep renting, you’ll miss out on those monthly housing payments going toward your home equity. And, even if you are renting, remember you are still paying off a mortgage – your landlord’s mortgage! The long-term benefits of homeownership – like home value appreciation and increasing home equity as you pay down the mortgage – only grow over time. These benefits are worth the short-term challenges that today’s sellers’ market presents.
According to multiple sources, home prices are expected to rise steadily over the next few years. Rising home prices in the coming years means two things for you as a buyer:
- Waiting to buy a home could mean it will become more expensive to do so.
- Buying now means the value of your home – and your net worth – will likely grow over time.
Still uncertain or want to know what the next steps are to buying a home? Please contact us and we can help you with your questions. And please, hang in there. Remember, the long-term benefits of home ownership do outweigh the challenges of this market!