Buying Real Estate in a Red-Hot Market
Inventory Is Limited
With scarce inventory of existing homes for sale and bidding wars shutting out even wealthy buyers, it can be tough to figure out what price makes sense for a home. Recently, stories of buyers willing to pay $100,000 over the asking price are becoming more common.
It is understandable why homebuyers are willing to pay such high prices. In March 2021 the available inventory of existing homes for sale dropped 28.2%. At the same time, interest rates remained near record lows. These trends are spurring demand and subsequent bidding wars. The average existing-home sale price stood at $329,100 in March, a record-breaking 17.2% year-over-year increase.
Determining What Is a Reasonable Mortgage Payment
Striking a balance between making a competitive offer and an irrational one can be difficult. To prevent buyers from overpaying, analysts say a mortgage payment should usually not be more than 35% to 45% of monthly gross income.
From there, homebuyers need to determine how much their mortgage payment will fit into their larger spending habits and financial health. A large mortgage payment could require certain sacrifices or lifestyle changes. Potential homebuyers should also consider their motivation for buying a home during this time to make sure they are not making a big financial decision just because they feel like everyone else is buying homes at the moment.
Is it Worth Waiting?
Depending on the location, it may be worthwhile to wait to buy a home until the overheated real estate market cools down a bit. Home prices are not expected to increase forever. Once the pandemic mortgage forbearance program expires, there may be more inventory available.
There are some caveats to this option. For homebuyers looking in areas such as Austin, Texas, which has job growth and large numbers of people moving in, it could be more expensive to purchase in the future. Buying a home amid unprecedented demand is a balancing act. Keeping a cool head and asking for advice will be helpful in navigating this process at a complex time in the housing market.
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