What You Need To Know About Buying A Home This Spring
Low inventory in many markets combined with higher prices and rising interest rates can make buying a home challenging, but not impossible.
Blooming flowers and warmer temperatures don’t just mark the start of allergy season. Spring is also peak season for real estate sales. If you’re thinking of buying a home this year, you’re probably wondering what the current market is like and how to navigate it. The 2017 spring real estate season differs from past spring markets in some big ways. Here’s what you need to know, whether you’re shopping in Fort Lauderdale, FL, or Des Moines, IA.
Inventory is low
Home inventory has dropped for eight consecutive quarters, making it harder to find a home, according to Trulia’s research. “In 2017, homebuyers are up against a very competitive market, where there are fewer homes for sale that cost more than they did last year,” says Trulia Senior Economist Cheryl Young. “The Trulia Inventory and Price Watch found that housing inventory hit its lowest level on record, having fallen by 5.1% from a year ago.”
Hit hardest? First-time homebuyers. There’s a larger inventory of trade-up homes and luxury homes than starter homes. As prices rise, people who might have been looking for a luxury home may now be in the trade-up market. Those who would have been in the trade-up market are buying starter homes or hanging on to the homes they already have. This means first-time buyers have to put in extra effort to land a home.
Homes are selling fast
Understanding the current real estate market can keep you from being blindsided. “Short supply is the dominant issue this spring,” says Bruce Ailion, an Atlanta, GA, real estate agent and attorney. “Homes that are priced at market and are in attractive condition sell in days.” Act quickly when you find something you like, and be flexible with seller requests, he advises — two tactics that can help you buy a home in a competitive market.
Interest rates are rising
Rising interest rates could price some buyers out of the market. “The Federal Reserve announced in March that interest rates would be increased by a quarter point based on the growing confidence on the economy,” says Young.
But interest rates are still historically low and affordable. “Higher rates will likely decrease one’s home-buying power, but it’s unlikely to deter serious buyers who are actively looking for a new home,” says Young. What’s likelier to happen, at least in the short term, is that more people will enter the market before rates get even higher. “I will note that anecdotally, many are concerned and lock in rates before the inevitable increases,” says Michael Kelczewski, a Pennsylvania and Delaware real estate agent.
Timing is everything
“The hardest part of buying a starter home is saving the down payment,” says Tyler Whitman, a New York, NY, real estate agent. “Once you have that in place, there are great options.” But should you wait to save 20% for a down payment (to avoid private mortgage insurance, or PMI), or should you buy now with only, say, 5% to put down before interest rates rise? “In most cases, it becomes more expensive to wait. If it’s going to take you two years to save 20% and prices and rates rise, it’ll usually be better to go ahead at 5% and pay PMI,” says Josh Moffitt, president of Silverton Mortgage Specialists in Atlanta, GA.
But don’t feel as if you have to rush to beat the interest rate clock if you’re not quite ready to buy. “We have a long way to go before interest rates reach a level that puts prospective buyers out of the market,” says Moffitt.
Consumer confidence is high
Rising interest rates signal a strong economy, and consumers, with renewed confidence in this strongest job market in 15 years, are buying homes. This is what most people call a comeback. People who found themselves underwater on their homes are now starting to see those homes gain value. They can now make — instead of lose — money on a home sale.
But as home values increase, we’re not seeing a glut of homes listed for sale. In fact, Trulia research has determined that in markets with the biggest home value gains, supply is tightest. The reason for this isn’t clear. One theory is that while homes are easy to sell in this environment, they are still difficult to buy. So even if people can sell for a good price, they would then be thrown into the same buyer pool as everyone else. A tactic that can improve your chances of success as a buyer this spring? Cast a wide net in your search, increasing your opportunities to land a home.
Being able to overlook the little things can help
If your ultimate goal is to become a homeowner this spring, you may wish to circle back to that older home with no upgrades that didn’t initially excite you. “Many available properties lack modern layouts and amenities,” says Kelczewski. “One solution I suggest is to pursue distressed properties.” It’s always good advice to ignore cosmetic issues like bad paint colors or poorly placed furniture. But in a competitive real estate market with low inventory, being able to overlook simpler flaws could be the difference between getting a good deal on a home and not getting a home at all.
Preapproval is more important than ever
You may need to offer more money to buy a home in this busy real estate season. First, figure out what you can comfortably afford. Don’t stretch yourself financially. “A typical starter-home buyer would need to dedicate 38.3% of their monthly income to buy a starter home — a 2.9 point increase from last year,” says Young.
Once your budget is set, focus on prepping your finances for a home purchase. “The more prepared in preapproval you are, the more value you add to yourself and your buying appearance,” says Moffitt. “This means having all documentation in line so you can move fast.”