Ask Brian is a weekly column by Real Estate Expert Brian Kline. If you have questions on real estate investing, DIY, home buying/selling, or other housing inquiries please email your questions to [email protected].
Question from Hannah in LA: Hi Brian, It’s time for a bigger house! We’ve been in our first house for six years and the family has grown from just the two of us to now include three young children. We almost went crazy getting through the worst of the COVID and can’t face another round of being cooped up in this 1,100 square foot house. When COVID started loosening up this spring, we looked into buying a bigger place, but the market was crazy. After being outbid on the three full-price offers that we made, we gave up. Do you think we should try again? We’re desperate!
Answer: Hello Hannah. All of 2021 has been a wild ride for homebuyers. We’ve had seller’s markets before but nothing like this one. The next few months could very well be a suitable time for you to venture back into the market. I think your decision if this is the right time to buy depends mostly on your personal finances. In other words, can you afford to buy the bigger home that you want? If you can afford it, this fall will probably be your best opportunity in the near future. There are several important reasons this fall may be a good opportunity to sell your first home and move up to something better.
Interest rates are probably going up. In his most recent remarks (August 27), Federal Reserve Chair Jerome Powell said that inflation and employment goals are meeting the intended targets. The fed will continue to closely monitor a wide range of measures, but indications are that interest rates could begin rising by the end of the year to prevent the economy from overheating. The main indicator the fed will be watching is the resurgence of the pandemic caused by the delta variant. Another emerging concern of the fed is preventing an upward spiral of both wages and consumer costs. As an example of what an interest rate increase means for home payments, a $300,000 mortgage at 3.2% has a $1,297 monthly payment. That same $300,000 mortgage at 4.0% interest has a $1,432 monthly payment. That $135 increase will leave many buyers unable to qualify for a mortgage. Locking in a low-interest rate before they go up will be a good thing this fall.
More inventory. Also last week (August 27), the National Association of Realtors (NAR) data showed that existing home sales rose 2% in July from the previous month. Total housing inventory also made a modest gain, up 7.3% from June. The median existing home price fell slightly to $359,900 — a drop of $3,400 from June. These changes are moderate but still all-around good news for buyers. Sellers should be realizing this is the top of the market. This is indicated by inventory going up and prices going down. Sellers that have been waiting for the top of the market can be expected to bring even more houses onto the market during the next few months.
Fall is typically a good time to buy. We are entering the time of year when there are fewer buyers in the market. This is typical as the new school year begins because parents are reluctant to uproot their children to a new school district. Hannah, with three children of your own, you may feel the same way, but it does make fall attractive for house hunters. And you said you’re ready to do exactly that.
Home prices will continue going up. Although the NAR data showed a slight drop in housing prices, don’t expect this to become a trend. There has been too much pent-up demand, for too long. Home prices have a long history of appreciating in value. What we can expect is for prices to mostly stabilize going into the fall. The expectation of modest price increases combined with interest rates going higher means this fall will probably be the best time to lock in the lowest monthly mortgage payment. One last thing to have in mind is there will probably not be any more government stimulus checks related to the pandemic. That means there will not be billions of dollars flowing into bank accounts that could be used for down payments.
Hannah, as I mentioned in the beginning, your personal finances are probably the deciding factor as to whether the next few months will be the right time for your family to buy a bigger and better home. Ideally, selling your first home will give you enough of a down payment to buy the home that you want to raise your children in for the next decade or so. It probably comes down to if you can afford the higher mortgage payments for a bigger home. I think the next few months will be the best near-term opportunity for you to lock in the lowest possible monthly payment. Best of luck to you and your family!
What do you think the coming months hold in store for buyers and sellers? Please comment.
Our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions or inquiries to [email protected].