2021 has been a year for the record books. Buying almost anything was tough due to supply chain issues, pent-up demand, and rising prices. The real estate market, however, was exceptionally difficult for buyers. List prices have soared on homes across the country and buyers constantly found themselves in multiple-offer situations. This year has been an extreme example of a seller's market, meaning terms and conditions favor home sellers, not buyers.
If you want to buy a home but are nervous about high prices, don't buy -- yet. We've mentioned before that renting an apartment is better than buying a home and this is even more true right now. Here's why.
Safety Net
The average American has less than three months of savings, according to CNBC. In other words, in an emergency, the average American only has enough money to cover food, housing, and other expenses for three months.
Unfortunately, for many people, that savings cushion was drained during the pandemic. According to PYMNTS.com, over 54 percent of Americans are now living paycheck to paycheck and struggling to make ends meet, including 70 percent of millennials.
Taking this opportunity to rent while also building up an emergency fund is a wise decision. While having a basic savings goal of $1,000 is a smart choice, three to six months of living expenses saved is more secure. A financial safety net also makes you more appealing to the bank when you are ready to buy a house.
Down Payment
In addition to building a safety net, use this time to save more for a down payment. A home is the single largest purchase most people make. The more money you can put down, the better. Furthermore, saving a larger down payment may help you afford a larger home or a home in a nicer neighborhood.
Whether you plan on saving just 3 percent down with an FHA loan or the full 20 percent for a conventional home loan, taking additional time to save for it can be good for your overall financial health.
Low Interest Rates
Interest rates are at record lows and have been for some time. Getting a home loan with a low interest rate can help make a mortgage more affordable. The good news is that rates are expected to stay low well into 2023, giving you plenty of time to take advantage of those low rates when you are ready to buy a house.
In fact, the Federal Reserve expects to keep the rate that it loans money to banks for mortgages at or near zero through 2023, which, in turn, keeps your interest rate low.
Soaring Prices
The prices of houses were incredibly erratic this year. House values have soared close to 20 percent over the course of 2021. Buyers were forced into bidding wars, driving up prices even further in their desperation. In fact, it was not uncommon for sellers to receive tens of thousands of dollars over the asking price.
Buying a home during such an extreme seller's market is not only expensive but can be extremely stressful as well. No one wants to overpay for a house. Waiting for the market to cool and for conditions to turn more favorable for the buyer may be a better option right now.
The key takeaway is that no one wants to rush into a big decision like purchasing a house. Renting an apartment allows you to save more money, wait for the market to cool down, and buy a home on your terms when you are ready. If you are looking for a new rental, contact Crossroads Westside to see our open listings.