March 28, 2024

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First-time homebuyer? Real estate experts offer advice in crazy market

8 min read
First-time homebuyer? Real estate experts offer advice in crazy market

It feels like a never-ending uphill battle for many homebuyers across the United States. 

“My experience with looking for a house has been frustrating,” one Georgia resident told FOX Television Stations Group. “I have been texting my agent day and night to squeeze in a showing only for the house to go before I could even go see it.”

But this is only the tip of the iceberg for first-time homebuyers and likely not the first story you’ve heard, especially lately: tight inventory, multiple offers on rundown properties and houses selling for well over the asking price — sometimes by hundreds of thousands of dollars.

Last year, the housing market sizzled across the nation, with annual existing-home sales hitting their highest mark since 2006, according to the National Association of Realtors (NAR).

“After an initial lull in 2020, the market has been red hot and getting hotter,” said Ron Melendez, a senior agent in Los Angeles with Compass’s The Stephanie Younger Group.

So, how can first-time homebuyers navigate the process without becoming burned out, deflated or giving up altogether? 

Don’t expect home prices to come down in 2022

If you’re a prospective first-time homebuyer hoping (or praying) home prices will decline in 2022, most experts agree: don’t count on it.

“If people are waiting for a price to decline, well, it’s not going to happen,” Lawrence Yun, chief economist of the NAR, told FOX Television Stations. 

soldsign

BRAMPTON, ON – MARCH 10: Houses continue to draw a premium price, as this recent SOLD sign shows. Inventory continues to be low which helps to drive up the prices for those looking to buy. CORONAPD Toronto Star/Rick Madonik (Rick Madonik/Toronto Star

Yun predicts healthy price gains in 2022, but noted the double-digit price gains and intense multiple-offer situations experienced in 2020 and 2021 will likely be a thing of the past.

“The momentum will slow down a bit,” Yun added. 

Real estate services and investment firm The ESR Group currently projects home price growth of 7.6{73375d9cc0eb62eadf703eace8c5332f876cb0fdecf5a1aaee3be06b81bdcf82} in 2022, down from last year’s record-setting 17.3{73375d9cc0eb62eadf703eace8c5332f876cb0fdecf5a1aaee3be06b81bdcf82}.

Be ready to compete

But, since experts predict prices aren’t likely to drop anytime soon, they say you need to be ready for the competition if you are someone who desires to purchase a home this year and in this climate.

“If you want to buy, it is totally possible, but you will be pushed out of your comfort zone, so have a plan in place with an agent you trust,” Melendez continued.

While experts say rising mortgage rates should help slow the growth of home prices, the higher rates will also make home-owning even less affordable for those taking out a loan.

Yet, this won’t affect anyone paying cash — another dilemma homebuyers currently face, as they compete with all-cash buyers.

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“This is the struggle of so many people competing with cash buyers and people with large resources,” Lloyd Fox, a broker and owner of Long Realty’s The FOX Group in Scottsdale, Arizona said. “It’s a struggle for first-time buyers and people with average means to get a home and not give up too many protections like appraisals and home inspections. There is zero time to make decisions or the decision is made for you by someone more decisive.”

Atlanta’s future resident agrees.

“I have been looking at houses within 500K to 700K but there are buyers offering all cash or offering to pay 100K over the purchase price and that is something that not most people can afford to do. So, that has been a struggle for me and I’m sure many others,” the Georgia resident explained. “The market is crazy right now, but from what I have been hearing and reading it will only get crazier so it feels like a never-ending uphill battle.”

Don’t be too alarmed by rising interest rates

Yun predicts the U.S. will “definitely” see higher mortgage rates, but notes there should be no reason to be alarmed.

“Maybe we will reach something closer to 4{73375d9cc0eb62eadf703eace8c5332f876cb0fdecf5a1aaee3be06b81bdcf82} average rate on the mortgages by year-end, from 3{73375d9cc0eb62eadf703eace8c5332f876cb0fdecf5a1aaee3be06b81bdcf82} of last year. It is an increase, but it’s not a drastic increase,” Yun explained last month.

RELATED: Will real estate housing market crash or cool off in 2022? Experts give their 2 cents

According to data from Zillow, the current average interest rate for the most popular 30-year fixed mortgage is 3.91{73375d9cc0eb62eadf703eace8c5332f876cb0fdecf5a1aaee3be06b81bdcf82}. The NAR projects the 30-year fixed mortgage rate will close the year at 3.9{73375d9cc0eb62eadf703eace8c5332f876cb0fdecf5a1aaee3be06b81bdcf82}.

“3.5{73375d9cc0eb62eadf703eace8c5332f876cb0fdecf5a1aaee3be06b81bdcf82} is still a ridiculous rate you’ll probably never see again,” Fox noted in February of Arizona’s interest rates.

He suggests making sure your locked-in interest rate is as low as possible. He noted you may consider opening a credit line at today’s low rates as a rainy day option to keep open.

Inventory will pick up but remain low

In addition to high prices, record-low inventory is also sweeping cities in 2022.

“Inventory is terrible. There really is nowhere near enough to meet the very high demand. We are seeing between 10 to 20 and more buyers for every home, driving prices up on a weekly basis,” Melendez added.

In the Detroit metropolitan area, it’s not any different. Eric Jurmo, a Detroit agent and owner at Keller William’s Eric Team, revealed inventory in the area is currently at an all-time low.

sold1.jpg

A sold sign is seen in front of a purchased home in San Francisco. (Credit: Justin Sullivan via Getty Images)

“We have experienced decreased inventory which has driven up sales prices dramatically. Some areas have seen prices rise from 15 to 30 percent in the last year,” he said.

Since mortgage rates will continue to rise but are not expected to increase considerably, experts suggest it may be worth it to wait until there is more supply or choices available later in the year or next.

Yet, be aware, waiting longer also equates to higher prices as home values continue to increase.

“Do everything you can to put yourself in the position to make the strongest offer now. You might not be able to afford the same area by the end of the year,” Jurmo added.

Consider expanding home search area

Yun said hopeful home buyers, who are getting priced out, may also want to widen their geographic search where homes may be more affordable and more construction may be occurring.

The exodus out of California, New York and similarly expensive housing markets due to the development of work-from-home flexibility for employees is also impacting the housing market.

According to the NAR, states surrounding California — including Arizona, Nevada, Idaho, Oregon and Washington state — are outperforming California in the housing market, principally because Californians are moving there seeking better affordability or able to due to increasing work-from-home options.

But, in return, this is another factor impacting home prices elsewhere.

“It’s been dramatic and everything looks like it’s on sale to California money,” Fox said of Californians moving into the Phoenix real estate market. “The prices have soared with silly bids. People are winning and paying at a clip of 50-100k over the next person in some instances. Carelessness in this sense has pressed some communities into questioning values but January 2022 saw another two-percent jump in the median price for a single-family home.”

Melendez said he is noticing this trend in California, adding “Arizona, Colorado, Tennessee and Texas are all popular destinations where California transplants can flex their economic muscle, and we are hearing how hard that makes things for the local buying population.”

But, Yun said, increased construction in other areas, especially the suburbs, could move the U.S. housing market towards a more balanced condition.

“We are seeing that builders are building more,” Yun added, noting the additional rise in some commercial real estate buildings.

Jurmo has also noticed an uptick in construction in Michigan, adding, “We are seeing a lot of new home starts and new subdivisions being developed. Most are in the farther suburbs.”

Bottom line: Stay strong

Only time can ultimately tell what will happen, but one thing is certain: homebuyer fatigue is settling in.

Melendez added: “This market requires the right mindset and trust that what feels like an exorbitant price now will look like a bargain in a month. It is starting to feel like buyers are tapping out, unwilling to play the game anymore.”

Sam Khater, the chief economist and head of Freddie Mac’s Economic and Housing Research division, agrees. 

“Given how fast the market has shifted the last two years, there’s probably a fair amount of homebuyer fatigue that will set in later this year, so any news of a slowdown in activity back to more normal levels would be welcome by consumers.” 

If you decide to wait and rent instead

Experts say many factors are responsible for astronomical rents, including the nationwide housing shortage, extremely low rental vacancies and unrelenting demand as young adults continue to enter the crowded market.

But with the low number of homes for sale, this has caused many households to remain renters.

If you’re stuck renting, Brian Carberry, an expert with leading national consumer resource Rent.com, said there are some things you can do to find some relief. 

If you’re considered a good tenant who pays their bills on time and has been at your unit for an increased length of time, you may be in the position to negotiate down your rent. A landlord may not want to deal with putting a rental on the market and waiting for another renter to sign a lease, so you may be able to negotiate your monthly payment.

If you need to find a new rental, there are also some options you can try. 

Carberry recommends offering to extend your lease to 24 months instead of 12, as an enticing offer to land the property.

RELATED: Will renters see relief, lower rent payments in 2022? Experts weigh in

You may also consider looking at which amenities are actually included in your rent payment. For example, if there is an extra parking space that you don’t need, you may be able to give that space away in return for a smaller rental payment. 

“Some people may pay more, some people may pay less, but there are deals out there. You just have to do your homework and look, and when you find something, don’t be afraid to act on it, because it is such a hot market right now,” Carberry concluded. 

This story was reported from Los Angeles.

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