There’s a reason so many homebuyers are struggling to buy a home this year. Property values continue to climb and these increases do not seem to be running out of steam.
In October, the median price of an existing home sold was $ 353,900, according to the National Association of Realtors. This is an increase of 13.1% from October 2020.
Why are house prices rising so much?
One of the main reasons today’s homebuyers face high prices is related to limited supply and increased demand. At the end of October, 1.25 million homes were available for sale. This is a drop of 12% compared to last October, when the real estate stock was already low.
In total, the real estate market is now considering a supply of available housing over 2.4 months. Typically, it takes 5-6 months of supply of homes for sale to create a housing market where neither buyers nor sellers have the upper hand. Right now, sellers are clear winners in this regard.
Not surprisingly, first-time buyers in particular have struggled to break into the market. First-time buyers only represented 29% of home sales in October 2021, against 32% in October 2020. But historically, first-time buyers represent around 40% of home purchases.
Can you afford a house at today’s prices?
Generally speaking, your monthly housing costs, including your mortgage, property taxes, insurance, and any other foreseeable expenses, like HOA fees, should not exceed 30% of your take home pay. There is some leeway with this formula, as if you live in a city where transportation costs little or no cost. But for the most part, meeting that 30% threshold will increase your chances of being able to meet not only your housing costs, but all of your bills.
If you’re not sure how much home you can afford based on this formula, use a mortgage calculator to calculate a few numbers. See what the average house prices are in the area you’re looking to buy, then enter that data to see what monthly payment you’ll consider based on your down payment and mortgage interest rate.
If you are unsure of the latter, you can use today’s average rates as an estimate. Just keep in mind that if your credit score is good you could get a lower rate, and if your credit score could take a little work you could end up with a higher rate.
If you find that you can’t rock a house today, you are in good company. And in this case, the wait could pay off.
Once new home inventory hits the market, home prices could start to drop, so staying tight could be to your advantage. Plus, waiting to buy could mean giving yourself more time to find a larger down payment. This could, in turn, allow you to borrow less – and lower your mortgage payments to the point where you fall into the ideal 30% threshold.
Today’s real estate market is difficult to navigate for many buyers. If you can’t afford to buy at current prices, you’re probably better off putting your plans on hold than pushing yourself beyond your financial comfort zone and hoping for the best.