Pamela Grunstein still thinks about the couple who presumed the high-priced, haywire housing market of 2022 was bound to settle down, so they put their house hunt on hold to wait it out.
Grunstein, a real estate agent with the Francie Malina Team in New York’s Westchester County, met the couple when their local market was rife with bidding wars and offers often six figures over the asking price. Although they were eager to find a home for their two young kids, they also worried that market conditions were so nuts that they’d end up overpaying.
“They felt that everything was wildly overpriced and that they were chasing the market up,” Grunstein says.
Eventually, the couple decided to stop home shopping. Instead, they found a place to rent, even though its small size and dated layout made it less than ideal for their growing family.
“They figured it would be temporary—’We’ll sit and wait for the market to dip,'” Grunstein recalls. “‘Then we’ll go back and find our house.'”
But the market did not dip. On the contrary, prices in the area are now 25% higher than when the couple had paused their house hunt presuming home values would eventually reverse course. They watched prices continue to spiral upward, and then, feeling desperate and against their better judgment, bought the home they were renting.
“It was not a happy ending for them,” Grunstein says.
Why trying to time the housing market is a terrible idea
In the topsy-turvy housing market of the past few years, many homebuyers might be tempted to “time the market,” where they try to purchase property right when prices dip rather than peak so they don’t end up overpaying for a house.
Real estate agents across the country describe situations like the one Grunstein watched, where buyers decide to wait because they assume prices (or mortgage rates) can only go down from where they are.
The results, however, are rarely in their favor.
On the flip side, agents also relay stories of homebuyers who do the opposite, where they rush to buy a home that isn’t ideal because they assume prices (or mortgage rates) will continue to surge.
Julie Chang, an agent with Pacific Sotheby’s International Realty in San Diego, calls that “FOMO buying.”
Experts caution against both.
“It is not a good idea to try to time the market,” says Danielle Hale, Realtor.com® chief economist. “No one has a perfect view into the future. Whether you think rates or prices are going up or going down, the world may not evolve the way you expect it to. We all have to make decisions with that uncertainty.”
Why fear of overpaying can paralyze homebuyers
To be sure, market conditions always shape the decisions of homebuyers to some extent. Prices have risen over the past few years, and more recently, mortgage rates shot up as well. At some point, this meant that certain buyers simply couldn’t swing the monthly payment needed, and no longer qualified for a home loan.
Buyers pushed past the brink of what they can afford have good reason to pull the plug on their property search. However, homebuyers who are clearly on solid financial footing but simply worried they might overpay in a heated market are in a different camp—and might sorely regret letting their need for a real estate deal keep them on the sidelines.
Many buyers are stuck in limbo, “waiting but watching,” as Chang describes one of her current clients. The man, a young professional, knows prices have moderated slightly from their mid-2022 peak, and he’s betting that they might cool a bit more.
It doesn’t help that higher rates have all but priced him out of the market, but Chang says what’s really driving his decision is that he doesn’t want to be buying a house during a market’s descent as prices plummet.
For anyone fearful of such a scenario, Hale suggests it might not be as bad as you fear.
“We know from surveys that overpaying is one of the big fears homebuyers have,” Hale says. “It’s easy to imagine that this fear is especially pronounced when home prices continue to hover near record highs.”
And while home prices are expected to soften a bit this year, stubbornly high mortgage rates might keep the cost of housing high regardless. Homebuyers should not expect to find deals in 2023, and the sooner they accept this, the better.
“A moderation in home price growth will not be enough for the housing market to be a buyer’s bonanza,” Hale noted in her 2023 housing forecast. “If home shoppers and sellers have unrealistic expectations, they could find themselves in a stalemate in the year ahead. The 2023 housing market could become a ‘nobody’s market,’ not friendly to buyers nor to sellers.”
So when is the right time to buy a house?
In today’s bargain-hunting culture, the urge to hold out for a deal is understandable. Yet while this “buy low, sell high” approach might work fine with stocks or luxury goods like a flat-screen TV, it does not translate well to real estate transactions. Why? Because a home is something that’s typically bought or sold based on day-to-day realities—Is it located close to your job? Is it big enough for your family?—not where the market’s at at the moment.
So instead of obsessing over the market, try to keep your eye on the real prize, which is your own personal living situation.
As Hale explains, “Are you ready to commit to being in one location for five to seven years? If the home fits your needs, falls within your budget, and is one you can live with medium term, that’s the best way to set yourself up for success.”
James Deskins, who runs a real estate brokerage called The Homebuyer’s Advocate in the Columbus, OH, area, helped his daughter and her husband focus on what mattered when buying their first home in December. At first, Deskin admits, the market weighed heavily on their minds.
“I said, ‘Listen, if you wait, chances are prices are going up,’” Deskins says. “They thought, ‘We should do this now.'”
Yet rather than succumb to “FOMO buying” and taking any old home, they waited until they found the right house, one that they could afford that met their needs.
“She didn’t settle,” Deskins says. That’s key, he thinks: It was the house, not worries about the market or pricing, that sealed the deal.
The post The Massive Mistake Homebuyers May Be Tempted To Make Right Now: Is This You, Too? appeared first on Real Estate News & Insights | realtor.com®.