If it feels like last year was a crazy one for the housing market, that’s probably because it was. In 2021, houses sold at the fastest rate in history.
You may be tempted to jump into the fray, but don’t let FOMO — that is, the fear of missing out — lead you into a costly mistake. This may not actually be the best time to buy a home, and here are the reasons why.
1. Mortgage rates are rising
You may have heard the news: The Federal Reserve increased the federal funds rate in March for the first time since 2018. And when the feds increase their rates, lenders are sure to follow.
Rates for 30-year fixed mortgages have already jumped above 4.5%. That means it could be cheaper to stay in your existing home rather than buy a new one.
2. Your choices are slim
Even if you want to buy a home, there may not be many properties from which to choose. In January, the nationwide inventory of homes for sale hit its lowest level since 1999.
That means current homebuyers may have to make compromises about the location and features of their new house. It may be better to wait until inventory levels rebound, and then you can buy the home you really want.
3. Homes may be overpriced
Because there are so few homes on the market, the ones that are available may be overvalued. This seems to be especially true in parts of Florida and Arizona.
Rather than pay too much by buying now, wait until the market cools off.
4. You could get stuck in a bidding war
If you shop for a home now, you could find yourself in a bidding war with other potential buyers. That will only increase your price further.
Between July 2020 and June 2021, homes typically sold at their full asking price with 35% of buyers paying more than the asking price, according to the National Association of Realtors. That trend seems to be continuing this year in many areas.
To see where you are most likely to get caught up in a home-buying feeding frenzy, check out “15 Cities Where Homebuyers Are Most Likely to Face Bidding Wars.”
5. It will likely cost more than you think
You may think the cost of a house can be measured by its mortgage payment, but owning a home comes with all sorts of extra expenses that can drain your wallet. These hidden costs include insurance, utility bills, taxes and more.
In fact, an analysis by real estate firm Clever found the average homeowner spends $15,405 per year on their home beyond what they pay for their mortgage. Letting the landlord take care of the leaky faucet sounds better and better already, doesn’t it?
6. Most people think this is a bad time to buy
It’s best not to make financial decisions based on public sentiment, but if you are looking for a second opinion, most Americans agree now is a bad time to be buying a house.
The Fannie Mae Home Purchase Sentiment Index found 70% of those surveyed in January thought now was a bad time to buy. Only a quarter said now is a good to buy, an all-time low.
7. Renting can be a better way to build wealth
Conventional wisdom says buying a house is the way to go if you want to build wealth — after all, real estate is known to appreciate in value year after year. In reality, though, once you tack on all those hidden expenses, your overall financial gain from a house might not be what you think.
If your goal is to make money, renting might be the way to go. Invest the money you save by being a renter, and your gains on stocks and bonds could outpace any appreciation you would see in a home.
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