Over the past few years, housing prices have skyrocketed. Between June 2020 and June 2022, the median home sale price increased by more than 70%, according to Redfin.
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These price spikes are enough to discourage potential buyers from entering the market. According to ServiceLink’s 2021 Home Buying Status Report, 33% of people who considered buying a home last year decided not to.
But as the market starts to cool down, you may be wondering if now is a good time to buy. If yes, how much do you have to budget?
To answer these questions, GOBankingRates spoke to two real estate experts about how much they are willing to pay for a home in today’s market.
When the market cools down, how much should you pay for a house?
Beatrice de Jong, consumer trends expert at Opened doorsays he’s already seeing signs of a cooling in the housing market.
“However,” she warned, “I think buyers can still expect high prices and mortgage rates, at least in the summer.”
Nicole Ruth agrees. As Senior Vice President and Operations Manager for Team Ruet Through the Fairway Independent Mortgage Corporation, Rueth sees overpriced homes on the market for an average of 28 days, while well-priced, well-furnished homes sell for four days.
“In general, homes are seeing fewer impressions, fewer offers, and fewer offers that ask for more,” she said.
Of course, the exact amount you can pay for a home depends on many factors, including your location and the condition of the property. However, there are a few general guidelines that you can follow to get your budget right.
Plan to pay more than the listing price
Although the housing market seems to be cooling down, many buyers are still buying overpriced homes. So it’s a good idea to focus on homes that are slightly below the price cap you’ve set, in case you need to raise your bid.
“Over the past two years, homes have most often sold at or above the listed price,” de Jong said. “This is something we see everywhere – and not just in cities. The suburbs also saw a massive boom. In the meantime, no-contingency, all-cash offers are becoming more common and continue to reign supreme when trying to win the bidding war.”
Save enough to cover additional costs
The price of a home should not be the only expense you plan; there are several others to consider. For example, if you bid higher than the asking price and the home’s appraisal is lower than that, your lender will likely only cover the appraised amount. This means that you have two options: walk away or close the hole in your pocket.
“If a buyer is looking for the perfect home, they should have an additional $25,000 to $50,000 earmarked for valuation gaps if they bid rather than demand,” Ruet said. “In addition, buyers will need approximately $7,000 to $10,000 for closing costs, which include lender fees, appraisal, credit report, title fee, first year of homeowners insurance, and two months of escrow (property and insurance taxes) “.
In addition to closing costs, de Jong encourages buyers to budget for home inspections and home maintenance and repairs. According to the US Department of Housing and Urban Development, home inspections cost between $300 and $500 on average. HomeAdvisor Poll shows that the average homeowner spent $13,138 on home maintenance in 2020.
Don’t wait for prices to drop, but stick to your financial limits
It can be tempting to wait to see if home prices drop before buying, but de Jong recommends following your needs and budget rather than trying to guess the market’s timing.
“Stick to your financial non-negotiables,” she said. “If the current market right now doesn’t fit your budget, don’t stress unnecessarily. With that said, explore your options to find the best financial product for you.”
Ruth strongly recommends not to wait. After all, as consumer demand continues to decline, supply will continue to grow, providing more options for buyers. This means that now is the right time to buy a house and start building capital.
“Know your numbers, your budget, your down payment, and your limits,” Ruet said. “Come in with your eyes wide open; and, when you see a home that has been on the market for more than a weekend, see it as an opportunity to negotiate!”
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