Is now the time to make a move on buying a new home?

One of the bright spots in the U.S. economy over the past year has been a surge in homebuying. Homes sales have been on a hot streak in recent months with strong demand coming from across the spectrum of first-time homebuyers, people looking to upgrade, expand or relocate, as well as those who are buying second vacation homes.

The U.S. has long been a country that has favored homeownership. Although the housing bubble that burst in 2008 resulted in a spike in home foreclosures and a bigger interest in renting, the pendulum is now swinging back the other way. Roughly two-thirds of all households in the U.S. currently own their homes. The recent homebuying boom has been fueled by incredibly low interest rates and a shift in behavior following the global pandemic. People who have been forced to spend more time in their homes are now looking for more space and a better quality of life.

That trend is evident in existing home sales that grew for the fifth straight month in a row in October to 6.85 million – a 26.6% increase compared to October 2019, according to the National Association of Realtors (NAR). It also is noted that homebuyers purchasing a second home represented nearly 15% of those sales, and home sales have been soaring in vacation areas such as Lake Tahoe, Myrtle Beach and Bridgeport, Connecticut.

Homes represent a major purchase

For many, buying a home is one of the biggest single purchases they will make in a lifetime. Incredibly low mortgage rates have created a very favorable environment for homebuyers. Mortgage rates vary depending on a variety of factors, such as an individual’s credit history, dollar amount and length of the loan term. However, average rates have dropped to near record lows. For example, the average rate on a 30-year mortgage has dipped below 3%, according to Freddie Mac. To put that into context, average rates in 2000 were above 8% and even soared as high as 16% in the early 1980s.

One of the challenges for homebuyers is competition and a limited availability of homes for sale. The median existing-home sale price is now $313,000, which is 15.5% higher than October 2019, according to NAR. In addition, there is a record low inventory of for-sale homes available. In fact, 72% of the homes that sold in October were on the market for less than a month.

A question for many buyers is where to locate. When considering an urban versus suburban location, or even the purchase of a home in a new city or state, both quality of life and affordability are two important factors to consider. In addition to rising home prices, the cost of living also is on the rise in many cities. According to a new report from Move.org, the cost of living has risen an average of 7.33% across 75 cities in the U.S. Those cities with the highest living costs are San Francisco, New York City and Oakland, Calif. At the other end of the spectrum, those cities with the lowest living costs are El Paso, Texas, Wichita, Kansas and Lincoln, Nebraska.

10 Tips for Homebuyers

Any major purchase can be a stressful decision, and that is certainly the case with buying a new home or a second home. Here are 10 tips from real estate experts to help take the stress out of homebuying and help make prudent choices when considering a new home purchase.

1. Do your homework. Research the city, as well as the suburban and neighborhood options so you know where to start your search.
2. Know what you can afford and establish your price range.
3. Be prepared to act quickly.
4. If you plan to secure a mortgage, do get pre-approved for a loan before you start house hunting so that you are able to move fast on a bid.
5. Work with a trusted realtor who can guide you through the process.
6. Don’t get blinded by your “dream home”. Be diligent in the home inspection to uncover any problems.
7. There is no such thing as a “perfect” home. Understand qualities and features that are “must haves” versus “nice to haves” and be prepared to compromise.
8. Don’t make sudden changes in your finances as that can impact your ability to finalize the loan.
9. Don’t sign anything until you read and understand it.
10. Make sure you are aware of additional costs before committing to a purchase, such as needed repairs or fees related to a condo or homeowners association.

Realtors often advise clients to be ready to move quickly in the current competitive market if the right buying opportunity arises. If one doesn’t, the fear is that you may miss an opportunity. However, it is important not to get swept up in a frothy market. It also is wise to consider the home purchase in the broader context of what remains an uncertain climate. The pandemic has prompted an outmigration from major metros, such as San Francisco and New York City. It remains to be seen if those changes will be temporary, or if they might represent more permanent shifts that could influence where you want to live in the future. Homes are often a long-term purchase. As with any major investment, it is wise to be thoughtful, use caution and work with trusted advisors.