The Real Estate Cooldown: What Does It Mean for You?
The real estate market typically peaks in the summertime, but this past year experienced a somewhat historic rise in home values. Sellers loved the growth because it allowed for increased profits, but buyers were frustrated because nearly every purchase became a bidding war, which is not good from an investment standpoint.
The market is cooling, and that can scare a lot of homeowners or sellers while easing the stress on homebuyers. However, despite the talk of housing bubbles, there is nothing you need to worry about currently. While the market might be approaching its peak or already reached it, according to Housing and Mortgage Market Review, there is a 90% chance of home prices remaining the same or rising over the next two years.
Increased Supply Is a Driver of Market Value
The fundamental principle of economics — supply and demand — is the primary driver of market value. The pandemic last year led to a shortage of available properties, leading to dramatic home value increases.
The market is shifting with more homes entering the sales space. Demand is evening out, resulting in fewer bidding wars and lower prices. On average, the U.S. housing market experienced a 4% increase in available houses over the past several months, with some major cities experiencing a 10% boost in supply.
While supply increased cooling demand in many areas of the country, not all states experienced the same shift; for example, in Rochester, New York, supply decreased by 10%. However, as investors, the national average is the primary determiner of strategy.
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Cooling Markets Are Not a Reprieve for Buyers
While many buyers might celebrate the news of a cooling market, there is little reprieve with current prices. The housing market is still a hot commodity. While the supply might be increasing, the demand is still higher than available inventories. Buyers will still need to be competitive, patient, and intelligent.
A buyer should get a mortgage preapproval. Credit-underwritten, legitimate preapprovals show sellers you have a genuine offer, which you can back up.
However, remember that being preapproved for a mortgage does not mean you need to max out financially. Keep your mortgage to a reasonable amount. Many experts suggest buyers keep 15-year fixed-rate mortgage payments to 25% of their net monthly income.
While it can be frustrating for homebuyers, patience is the key in the current market. In another couple of years, the market should return to more predictable offerings. In the meantime, if you are itching to purchase a new home, try to take advantage of the low-interest mortgage offerings currently available.
Increased Supply Is Not the Nightmare Homeowners Might Think
After the 2008 housing crisis, it is common for homeowners to freak out a little when they hear terms like “housing bubble.” Thankfully, the current market does not represent another Great Recession. Homeowners and sellers can still expect at least two more years of increasing or stable home values. However, a cooling economy does mean a strategy overhaul.
Do not borrow against your home’s value. The increasing equity is tempting to tap into, but using a home equity loan or HELOC loan puts your property at risk, and most situations do not justify it.
Consider adjusting your price to appeal to more buyers. With a cooling market and increasing inventory, homebuyers have patience. Fewer buyers are willing to enter bidding wars, and those willing to purchase now are often aware of fair housing prices.
The current housing market is shifting, but home values remain strong. The recent leveling off is expected and should not be feared.