Housing prices continue to be on the upswing. If you’re looking to buy a home, should you wait with the hope of a price drop or should you jump in because prices are going higher and pickings are slim? Is it still an attractive investment or are we in a bubble? Trends in the rise of residential real estate have several planning implications you should discuss with your family and advisors.
It’s virtually a seller’s market throughout the country with bidding wars, offers made sight unseen and a lack of inventory. Home prices are 15.8% higher on average throughout the country per a recent National Association of Realtor’s report. In some red-hot markets, buyers are eliminating contingencies in fear of losing out on another offer. Some buyers are getting priced out, and rental and apartment markets are tightening.
Locally, housing is a boom market. Bryan Drakulich of Drakulich Realty shared some statistics for the Reno/Sparks area. There are 1,203 active listings of homes up to $1 million in which 84% of those are pending, leaving 258 homes available. For $1 million and higher, there are 153 active listings, 85 of which are pending and 68 homes available.
Drakulich says that “Normally there are 12-18 months’ worth of inventory of luxury homes ($1 million and above). We currently have less than a month’s worth.” Since April 2020, the median sales price is up 19% and active inventory has declined 69%. In his 41 years of real estate, he can’t recall a time similar to this.
Several factors are driving the surge in prices nationally (and locally) including:
- Millennial homebuyers are increasing. They are seeing the value in owning their space.
- Low interest rates have been attractive, however, rising home prices and concern for higher rates are headwinds for “affordability.”
- The so-called “Great Reshuffling” – Work from home became the new norm. Internet connections allowed some workers to live where they wanted. This includes moving to more affordable and medium-sized metro areas as well as a shift to more tax-friendly states.
Home-buying fears center around affordability, per the 2021 Millennial Home Buyer Survey by Clever Real Estate. Millennials’ worries include:
- Unexpected or hidden costs (47%)
- Lack of affordable homes (44%)
- Prospect of major repairs (38%)
- Possibility home values will decline (31%)
- Not being able to qualify for a mortgage (29%)
Here are some relevant planning tips related to real estate to keep in mind:
Budget cash flow needs – Include the costs of repairs and maintenance of your home when saving and planning for your retirement. Costs rise as both you and your home age. Rental properties have their expenses as well including maintenance, downtime between renters and property managers.
Upsizing or downsizing – Resizing a home (or moving to a different neighborhood) can be very challenging in a hot market. You may need your equity for the new purchase, and you don’t have the option of sell home, then rent and search, then buy new place. Here’s where you may need to get creative with financing with your realtor and lender. Or consider options with your family from getting an advance on your inheritance to temporarily moving into their basement.
Getting aggressive with your purchase – Drakulich offered three tips to a winning offer:
- Get pre-qualified for a mortgage
- Have the cash ready – documented, account statements, gifts, etc.
- Be ready to go. When your realtor finds you “the place” you’ve got to be ready to move on it.
Home prices can’t keep going up forever. However, be prepared and try to make the right decision for your financial future. May you have sage advice and secure your future wisely.