So here’s a true story. Yesterday, a good friend of mine asked the following question via text message: “What’s your outlook on the real estate market…we are looking to buy a place soon.”
That’s the exact message he sent over last night; there weren’t any emoticons by the way, sadly.
That’s a Pretty Loaded Question
- I had to digest his question for a bit
- Before jumping in because it’s a loaded one
- And also a very personal one with a lot of potential answers
- That aren’t necessarily right or wrong
I saw the message but did my best to avoid answering it for about half an hour. Then I finally cracked and responded with the following:
“In a word, overpriced. But if you really want to buy a home that’s your deal. It’s not always about the investment.”
Now in the past I may have just left it at “overpriced,” but I’ve learned that such remarks are often met with resistance. I also don’t want to ruin anyone’s grand plans.
And it’s true, buying a home isn’t just about the investment. It’s not simply about timing the market and making a killer profit, that is, unless you’re a real estate investor.
For most people it’s a home. It’s a place to live. There are reasons to buy other than turning a profit.
So my outlook has changed, or perhaps broadened, to include benefits beyond making money.
But my point was basically that it’s not an ideal time to buy in terms of investment, but it could be a great time to buy a home if there’s one you really like and want to own.
At the end of the day, if he gets the home he wants, he’ll probably be happy, even if it doesn’t double in value in five years. Even if it flat lines or drops, he’ll probably still be happy if he truly loves the home.
And over time, he’ll surely build equity and come out ahead as home prices reach new heights.
National Median Sales Price Reaches All-Time High
- There are some signs that point to caution
- Like the national median sales price hitting an all-time high
- But if you factor in years of inflation
- It might not be as high as it looks, nor that close to its eventual top
Yesterday, the National Association of Realtors reported that the national median sales price reached an all-time high.
The price of a median existing home climbed to $236,400 in June, a 6.5% increase from a year earlier, enough to surpass the previous peak median sales price reached in July 2006 ($230,400).
For the record, the median sales price has increased year-over-year for 40 consecutive months, so yes, home prices have been on a tear.
Home sales have also been white-hot, with existing sales hitting their highest level in over eight years (February 2007).
Properties are also being scooped up faster than ever, with the average time on market only 34 days in June, down from 40 days in May, making it the shortest amount of time since NAR began tracking in 2011.
I also got word from a real estate agent friend that new home sales are picking up again. Recently, builders were offering discounts, but now that inventory is so low, they’re increasing prices and slashing discounts.
Beware of Overpaying for a Home
- The one thing that is clear is the supply/demand imbalance
- There are too few properties for sale and as such bidding wars are prevalent
- This could lead to “overpaying for a house”
- But pricing isn’t everything and that’s one reason why it’s such a tough question to answer
This is basically a testament to the supply/demand imbalance that is causing home prices to keep rising, and making bidding wars a common situation.
It’s for these reasons that I don’t love the current market as a buyer. At the same time, selling isn’t ideal either because there’s a good chance home prices will continue to increase.
In fact, if you look at real prices adjusted for inflation, home prices aren’t really at new all-time highs. In today’s dollars, the median would have to be closer to $260,000.
So buying because you love a home still makes sense today, as it always will. And you’ll probably do just fine if you can afford the home and stay in it for several years.
But if I had to take a side, I’d say that home prices are bloated and the competition is fierce. That certainly makes it a lot less attractive to buy today than in the very recent past. I’m taking a wait and see approach.
(photo: Teddy Kwok)