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FirstTime Home Buyer Is The Housing Market Still Hot
First-Time Home Buyer: Is the Housing Market Still Hot?
5.51 million existing homes welcomed new owners in 2017. That averages to a monthly total sale of almost 460 thousand properties! The new home sector did pretty well that year too, having sold 612,000 properties.
What do these figures tell us? Is the market still hot or is it beginning to cool down?
The most important question, however, is: "What do all these mean to you as a first time home buyer?"
That's exactly what we'll share with you in this post, so keep reading!
Hot Market vs Cold Market: Which Temperature is Best for Buyers?
The terms "hot" and "cold" markets are some of the most common you'll hear in real estate. Understanding the difference between the two is key to a successful home purchase.
Hot market sounds much better than cold, right? The truth is, sellers are the one who benefit the most from this kind of market.
For starters, because there are more buyers than houses to sell. Since there are more buyers than for-sale properties, houses sell a lot faster. This then makes buyers more competitive, leading to them being more willing to shell out more.
This is the kind of market sellers want. As the buyer though, this means you've got a lot of competition to deal with. It also means you have to prepare yourself to make higher purchase price offers.
This is where you, as a buyer, would benefit more than a seller. It's exactly the opposite of a hot market, since properties remain listed for a long time. Sometimes, they even get stuck on listings for longer than a year.
Because of this, sellers are more willing to drop their prices to attract more buyers. They're also more accommodating to buyer requests.
Note though that even if you have the advantage, it's best to remain realistic. Don't expect a seller to give in to low-ball offers. You may lose your chance of becoming a homeowner if you keep low-balling.
Where the Market is Currently At
After all the years the market has been sizzling, the "supply" of for-sale homes is still low. This means you, as a buyer, will find fewer housing options, much less locate your dream home.
But don't lose hope yet. The current house market inventory saw a 12.2% spike during this year's second quarter. That's a considerable 8.3% increase from last year's 3.9%.
Moreover, 30 of the 100 largest metros in the country reported inventory increases in 2Q 2018. Nashville, TN tops the list, followed by Salt Lake City, UT and Fort Worth, TX. What's more surprising though is that the list includes Los Angeles, CA, Miami, FL, and New York.
This upward trend in housing inventories is definitely a good sign for buyers. Those spikes signal more homes for sale, which then means more potential options for you as the buyer. If this continues, then we may see a cooler market soon.
How the Rising Home Values Affect You
The Housing and Mortgage Market Review says there's only a 5% chance of home prices going down by 2020. The significant spikes in the past year's average sales price support this claim.
For instance, the Census Bureau reports new houses in August 2018 sold at an average price of $388,400. The year before that, it was only $368,100. That's a whopping $20,300 increase in a single year!
There's still some good news for buyers though. Even if home prices will continue in an upward trend, they'll do so in a slower pace.
In fact, some of the largest cities in the country have already seen slower climbs in house prices. On the top of the list with the most significant slowdowns are Seattle, WA, and Sacramento, CA.
Furthermore, experts estimate appreciation rate to only be at 6.6% by August of next year.
What the Slower Rate of Home Sales Means
From April 2017 to April 2018, nationwide existing home sales saw a drop of more than 2%. This decrease in recent house sales continued all the way to July, with only 5.34 million units sold. For August 2018, home sales remain unchanged.
Now, couple this with the continued spikes in mortgage interest rates. From October 5th of last year's average 3.85%, 30-year mortgage rates are now at 4.71%. That's a 0.86% increase in only one year.
All this has then led to many home shoppers putting off the hunt for their dream home. With fewer would-be buyers, sellers are more likely to bring their asking prices down.
That tells you that if you do your home shopping now, you may find properties with lower asking prices. Or at least, encounter sellers who are more willing to meet your requests.
Actual Price Cuts on Listed Homes
Back in June this year, 14% of nationwide listings had a price cut. That represents a 2.3% spike from the 11.7% of listings that trimmed their prices before 2016 ended.
Even San Diego, CA, one of the country's priciest cities, saw price cuts in 20% of its listings. That's a considerable 8% increase from the 12% of listings that had price cuts the year before.
What's more, industry data show these price reductions are becoming more common.
As a buyer, that's definitely some awesome news. First, because that means you'll find lower-priced homes. Second, you can get more for your money (think a higher-end house).
First Time Home Buyer Must-Dos to Make the Most of the Cooling Down Market
With the 2018 housing market appearing to cool down, it's best you prepare yourself ASAP. Remember, a cool market is where buyers flock at, so you'll still have a lot of competition.
Keep in mind as well that this will be your first buying expedition. As such, you'd want to educate yourself on home buying must-dos as early as now.
Below are some tips you should follow to take advantage of the cooling housing market.
Show Sellers Proof You're a Serious Buyer
The best way to do this is through obtaining mortgage pre-approval. In fact, being pre-approved benefits you in several ways.
For starters, it provides you the chance to determine what your home loan options are. The lender you'll work with can also help you figure out where your budget is at.
You'll also learn of issues with your credit, such as errors on your report. It's important to get these fixed right away, as it may even become the reason you lose out on a great housing deal.
It's also through a pre-approval you'll learn of your "borrowing power". Your lender will tell you up to how much you can borrow, then giving you a clearer idea of your budget range.
Finally, this is the proof you'll show sellers that you're serious about buying. Your pre-approval letter can also help make it easier to negotiate with them. The more willing they are, the more chances you have of securing a lower purchase price.
Be Ready with as Big a Down Payment as Possible
While you're still house hunting (or about to start), save up as much as you can for your down payment. The question is, how much exactly?
The ideal amount is at least 20% of the home's purchase price. There's a lot of benefits to doing that, one of which is avoiding private mortgage insurance.
PMI is insurance that protects the lender, not you, so you'd want to avoid that as much as possible. Besides, that'll only make your total home buying costs higher than necessary.
Reduced mortgage cost is also a great reason to make a bigger down payment. That's because the more you put down, the less your actual mortgage amount would be.
That means your mortgage rate will apply to a smaller amount. Since there's less to apply an interest rate on, you'll pay less towards your mortgage interest.
You Know Your Budget, So Stick to It
All those months you've spent saving up for your dream home could've been frustrating. Especially if you've already found several homes you like only for other buyers to have beaten you to it.
That doesn't mean you should go beyond your budget once you find the next promising home. If the price difference isn't that big, then it's OK to compromise. But if it's more than a few thousand dollars, re-think your decision.
You want a home, yes. But you don't want to spend your life as a homeowner in a serious financial pinch.
Expert Help is Key to Getting Your First Home Purchase Right
As a first time home buyer, it's best to have a real estate professional by your side. You haven't had much experience in home shopping yet, much less buying one. Real estate agents can help make the process smoother and less painful (both to you and your wallet).
Plus, they have access to homes that you'll otherwise not find with your own DIY search. This may actually be the only thing that has stopped you from becoming the next proud homeowner.
Need help in locating your first ever home? Not sure if this year is your year or if you should put off home buying to next year?
If so, then feel free to connect with us! Shoot any question our way and we'll be more than happy to answer it for you.
Kyle is a licensed realtor and co-owner of the Realty Edge Team, brokered by eXp Realty, at 300 1st Ave NW Rochester, MN. He founded the Realty Edge Team in 2011 along with Dan Kingsley. At age 26, he....