So winning a bidding war on a move-in ready house that meets most of your needs in a good location is way easier said than done. And you don’t want to make what could be the biggest purchase of your life only because you’re suffering from a bad case of FOMO.
My partner and I put our first offer in on a home in the New York City suburbs about a year ago. It was a charming blue house with the most beautiful wall of windows in the dining room. I fell in love with the place the moment I stepped inside. The problem was that 13 other buyers felt the same as we did. Despite offering well over the asking price, we lost out on this home.
So we doubled down on our search, while continuing to save as much as we could while prices kept rising. We toured many more homes and lost several more bidding wars.
It took nine months from the time we began our search to when we closed on our first home. During that time, home prices ticked higher. But we had to wait for the right home, in a neighborhood we wanted to live in, to come up for sale—and then win the bidding war.
(I don’t want to minimize the struggle to become first-time homebuyers who are attempting to save faster than prices are increasing. It took us years of sacrifices and saving, but we were also incredibly fortunate as two professionals with jobs that allowed us to build up a down payment over time.)
Rising prices are a growing concern. Nationally, the median list price hit a new record high of $405,000 in March—a 13.5% increase from just a year ago and a 26.5% jump from two years earlier. Higher mortgage rates are expected to slow that growth down, although that hasn’t happened yet.
But that doesn’t mean you should purchase any old home just to get into the market, even if you’re worried you’ll be locked out financially due to higher prices if you hold off. The housing market is cyclical.
So while I can’t tell you when, prices will eventually moderate or even flatten—at least that’s what all of the experts tell me. That could provide an “in” for you down the road. When that will be, however, is the million-dollar question.
While mortgage interest rates are shooting up—hurtling toward 5% for 30-year fixed-rate loans—it’s worth noting that they could still be much higher. Rates averaged 4.67% for 30-year fixed-rate loans—the highest they’ve been since 2018—in the week ending March 31, according to Freddie Mac data. (To put that into perspective, in the early 1980s, rates were in the mid-17% range.)
So instead of becoming overwhelmed, focus on finding a home where you can comfortably live for at least the next five years. Any fewer than that, and you could wind up losing money on a sale, even if prices have risen even further. Remember that sellers are responsible for a hefty chunk of closing costs.
And accept the fact that if you’re a first-time buyer without millions in your bank account, you might not get everything you’d ever hoped for in a home. That’s OK. I’m a big proponent of compromising but never settling. That’s key.
Your first home might not have the chef’s kitchen you dreamed of, or it might be a little farther out than you’d hoped. Just make sure it has good bones and is still within commuting distance of your job. You can always renovate a bathroom or add a deck. In five-plus years, you can always trade up or down into a home that has more of the things that you want.
It’s also crucial to make sure you have enough money for a down payment, closing costs, furniture, and any remodeling you hope to do—as well as the maintenance that you’ll need to do on your home. And then stay within your budget.
That’s no easy feat with soaring inflation, especially if you find an amazing home that’s just out of your financial reach. However, you’re also going to need to buy food, make your car payments, and go out once in a while—and even take a well-deserved vacation—on top of paying your monthly mortgage. No one wants to be house poor. If the roof leaks or the refrigerator needs replacing, you want to have enough money to cover those unexpected expenses. And they might cost more a year from now as prices continue spiking.
The housing market might seem impossible to break into at the moment, but don’t lose hope. If you are persistent, keep saving, and are willing to compromise, when the right home comes along, you’ll be ready to go for it.
(Courtesy Realtor.com, Clare Trapasso)