Home prices have increased a lot over the past year and change. So much so that some prospective buyers are pumping the brakes, or at minimum, making sure the property they buy is really something they want to live in for the foreseeable future.
It’s kind of like the stock market. A year ago you could buy practically anything and realize a solid gain. Picture a dartboard. Today, you’ve got to be selective if you want to book a good return on your investment.
Of course, homes aren’t just investments. They’re for living in too, so today’s buyer should be really happy with the home in order to go through with the purchase, seeing that the price might not immediately surge higher.
The latest REALTORS® Confidence Index, which surveys more than 3,000 Realtors, found that the market is slowing, particularly because of higher home prices and a lack of inventory.
Respondents noted that buyers are approaching sellers as if it’s a buyer’s market when it’s in fact a seller’s market, meaning their lowball offers are going nowhere.
At the same time, appraisals are becoming an issue again, perhaps because home prices increased too much too quickly, and banks and lenders just aren’t willing to lend at such high valuations just yet.
The takeaway is that home prices are beginning to get tested. Perhaps we got a little ahead of ourselves. Time will tell.
Expectations for Home Price Growth Are a Bit More Muted Today
Over the next 12 months, Realtors don’t see home prices gaining all that much, especially in areas where inventory constraints aren’t an issue.
They believe the median national home price will rise 4%, with most states expected to chalk gains between 3% and 5%.
However, some states are still on track for even bigger gains thanks to a lack of inventory and strong home buyer demand.
For example, in Florida expected home price growth is 5-7% over the next 12 months thanks to both low inventory and all-cash sales.
Conversely, in states where income growth has been low, annual home price gains are expected to fall below 3%, which sure doesn’t sound like a compelling reason to purchase a home.
Unfortunately, affordability is rearing its ugly head again, even with mortgage rates still hovering around the very low 4% range.
But for many states, the best seems to be behind them, with more modest growth ahead. If you take a look at the map above, only a small handful of states are slated to see continued strong home price appreciation.
The winners include:
The losers include:
- New Mexico
And by loser, I mean Realtors don’t even expect home prices to rise 3% over the course of a year. So if you’re buying in one of those states and your agent says it’s a great time to buy, ask them why.
At the end of the day, buying a home today is more about necessity or wanting to own as opposed to rent, not so much about the potential windfall.
Sure, time should heal all wounds as far as paying too much, but you might want to look at other investments if it’s purely a spec play.