Housing prices continue to rise. If you’re looking to buy a home, should you wait with the hope of lower prices, or should you jump in because prices are rising and the choices are slim? Is it still an attractive investment or are we in a bubble? The rising trends in residential real estate have several planning implications that you should discuss with your family and advisors.
It’s practically a nationwide seller’s market with bidding wars, out of the blue offers, and a lack of inventory. Home prices are 15.8% higher on average across the country, according to a recent report from the National Association of Realtors. In some hot markets, buyers eliminate contingencies for fear of losing another bid. Some buyers are seeing their prices drop and the rental and apartment markets are tightening.
Locally, housing is a booming market. Bryan Drakulich of Drakulich Realty shared some stats for the Reno/Sparks area. There are 1,203 active listings of homes up to $1 million, 84% of which are on hold, leaving 258 homes available. For $1 million and up, there are 153 active listings, of which 85 are pending and 68 homes are available.
Drakulich says, “Normally there is 12-18 months of luxury home inventory ($1 million and up). We currently have less than a month. Since April 2020, the median selling price has increased by 19% and the active inventory has decreased by 69%. In his 41 years in real estate, he says he can’t remember a time like this.
There are several factors behind the nationwide (and local) spike in prices, including:
- The number of millennial homebuyers is growing. They see the value of owning their space.
- Low interest rates have been attractive, however, rising house prices and fear of higher rates are headwinds for “affordability”.
- The so-called “big shakeup” – working from home has become the new norm. Internet connections allowed some workers to live wherever they wanted. This includes a move to more affordable, mid-size metropolitan areas as well as a move to more tax-friendly states.
Homebuying fears center on affordability, according to the 2021 Survey of Millennial Homebuyers by Clever Real Estate. Millennial concerns include:
- Unexpected or hidden costs (47%)
- Lack of affordable housing (44%)
- Prospect of major repairs (38%)
- Chances of home values going down (31%)
- Not being able to qualify for a mortgage (29%)
Here are some relevant real estate planning tips to keep in mind:
Budget cash requirements: Include the costs of home repairs and maintenance when saving and planning for retirement. Costs increase as you and your home get older. Rental properties also have their expenses, including maintenance, downtime between tenants and property managers.
Upsizing or downsizing: Resizing a home (or moving to a different neighborhood) can be very difficult in a booming market. You might need your capital for the new purchase, and you don’t have the option of selling your house, then renting and searching, then buying a new place. This is where you may need to get creative with financing with your realtor and lender. Or consider options with your family, ranging from an advance on your inheritance to a temporary move into their basement.
Getting aggressive with your purchase: Drakulich offered three tips for a winning bid:
- Get pre-qualified for a mortgage loan
- Prepare cash – documented, account statements, gifts, etc.
- Be ready to go. When your real estate agent finds you “the place”, you must be ready to go.
House prices cannot continue to rise indefinitely. However, be prepared and try to make the right decision for your financial future. May you have wise counsel and secure your future wisely.
Brian Loy, CFA, CFP, is president of Sage Financial Advisors Inc., based in Reno. Contact him at www.sagefinancialadvisors.com.