Some financial advisors are cautioning their first-time buyer clients to wait and not buy now.

Hot Market Conditions Posing Big Challenges for First-Time Buyers

Buying a first home is a huge decision to make even in the best of (most favorable to buyers) times.  This housing market, however, is not the “best of times” for first-time homebuyers despite mortgage interest rates sitting at historic lows.

This housing market is defined by severe supply shortages and nearly unprecedent demand.  This off-kilter supply – demand ratio has pushed home prices to record highs.

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Housing Market Remains in High Gear

The pandemic kicked off a buying frenzy that hasn’t yet cooled.  According to Redfin, the average US home price hit $377,000 at the end of September.  This price tag of $377,000 represents an increase of +14% from September 2020 and an eye-popping increase of +30% from 2019.

Daryl Fairweather, chief economist with Redfin, said, “Interest rates are at historic lows, there is a lot of demand for houses…and there aren’t enough houses for people to buy.”

Fairweather pointed out that during the last ten years, the housing market nationwide saw the fewest newly constructed homes built since the 1960’s.  She believes that “…the construction industry simply hasn’t the capacity to alleviate the out-of-kilter supply-demand situation any time soon due to shortages of materials and labor.”

Fairweather said, “I don’t think housing prices will come down next year.  We are in a seller’s market, and we are very far from a buyer’s market.”

Some Financial Advisors Telling First-Time Buyers to Wait

CFP Sheryl Garrett, founder of the Garrett Planning Network, said, “This could be the worst market for a first-time homebuyer that I’ve ever seen.  Don’t be in such a hurry to buy a house.”

Rick Kahler, a certified financial planner and founder of Kahler Financial Group, said, “I told a client 18 months ago not to buy a house, but he did.  I was dead wrong, of course…(but) if you’re thinking of buying a home now, I would put it off for a year.”

Garrett cautions first-time homebuyers against buying a house for the “wrong” reasons.  She said, “Our society has a mentality that if you don’t own your own house, you’re a nobody.  There is nothing to be ashamed about with renting a home.”

Kahler too added, “Prices have gone up 20% to 30% in the last 18 months.  Renting may be a better option now.”

By the way, according to data from Redfin and RentPath, the average national rent across all sizes of apartments and homes increased +13.1% in the last two years.

Advice for First-Time Buyers Buying a House in This Market Environment

  1. Buy a house you can afford, not one you can’t.  Set financial boundaries for yourself and stick to them.  Kahler said, “I see people overspending $400-$500/month to get what they want.”
  2. Keep monthly housing (taxes, insurance, maintenance) costs at 25% of your income.
  3. Hire a fiduciary as your agent, one who represents only you…not both sides of the transaction. Kahler said, “You need someone to reach out to for a reality check when counteroffers come up.”
  4. Garrett suggested choosing a home and neighborhood where you want to live for a long time. Garrett said, “A renter can just pack up and move.  If you own the house, you could be stuck in it for months or years.”

Thanks to Redfin, RentPath and CNBC.





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