Buying a home is one of the most stressful events in any adult’s life. From visiting open houses to consulting with mortgage brokers, the entire process is enough to make anyone commit to renting for life.
But buying a house is also part of the American Dream, a culmination of hard work and careful decisions. Unfortunately, the housing market may not cooperate with your plans to buy a home. Thousands of people struggle with the decision to buy a house in the midst of a seller’s market and wonder if they should continue or take a rain check.
Want to see what you should consider if you’re caught in between? Read to see the pros and cons of buying a home in a seller’s market.
Some areas waddle back and forth between hot and cold housing markets, usually as the seasons change. But some cities remain forever popular with both current and new citizens. In those places, it’s always a seller’s market.
For example, the average price of a house in San Francisco was more than six times the average price in the US. Except for a couple of periods where the housing bubble burst, it’s been on a steady, sometimes rapid, incline in the last 40 years.
A market like San Francisco or New York doesn’t show signs of slowing down, so buying even in a seller’s market might make more sense than waiting and hoping for a miracle influx of housing. By the time you’ve waited, prices may be even higher.
Another good reason to buy is if interest rates are low or if your financial position has recently improved. Getting a good deal on a mortgage may be more important than finding the perfect home. A low interest rate allows you to build equity faster; the longer you wait, the more likely it is that interest rates will rise. Unless another financial crisis strikes the US, it’s even more unlikely that rates will decrease in the future.
Since your credit can impact your interest rate, you should know what kind of shape it’s in. If it’s not in great standing, you may want to take steps to improve it before you refinance.
The most important downside to buying in a seller’s market is the risk that you’ll be overpaying for your home. Prices go up in a seller’s market and buyers start bidding wars to land their favorite home. Once the dust settles, unlucky homeowners sometimes find themselves owning properties that are worth less than their mortgage.
Another con is that a lack of availability could mean you have to settle for a house that’s good enough, instead of your dream home. That could be because your ideal house is out of your price range or being scooped up by faster buyers.
Those looking for their forever home, where they hope to spend the next several decades, could benefit more from waiting. While you can refinance your mortgage later to benefit from better interest rates, you can’t change your mortgage balance. Once you buy an overpriced home, you’re stuck with it.
Even newlyweds or small families searching for a starter home might benefit from delaying their purchase. The first house you buy can affect your future housing decisions. For example, if you buy a house in a seller’s market, you could go upside-down on your loan. That would prohibit you from selling and finding a reasonably priced domicile.
Anyone who’s unsure should talk to a real estate agent or housing expert on what they think. Getting a variety of opinions could make it easier to see if you need to jump on the train or wait for the next one. Friends who’ve recently purchased a home could also share their insights on what they saw during the process.