A few weeks ago, I was exchanging emails back and forth with a potential home buyer. In her initial email she made this statement, “I personally believe now is a bad time to buy. I’m looking at houses going for $400,000 that sold for $300,000 just five years ago. This just seems crazy! I’m leaning toward saving more money for my down payment and waiting for a buyer’s market. But in the meantime, I’m throwing away money on a rental. I’m not sure what to do.”
Many buyers that are concerned about the current real estate market and where it’s going. They think everything is overpriced and are considering waiting for the market to turn back into a buyer’s market again so they can get a deal, or at least pay less money for their new home. To be honest, I believe they’ll be waiting a very long time and the data I’ve been reading proves that.
Prior to the year 2006, we were building an average of 1.2 million to 1.5 million new homes per year in the United States. That was exactly what we needed to keep up with demand and population growth. Then in 2007-2012, the market crashed because of high unemployment and risky loans that were available to people that probably shouldn’t have qualified for a home loan. Foreclosures and the economy made it harder for builders to continue building new homes, so home builders stopped building so many homes or quit the business all together.
The 5.9 million single family homes built between 2012 and 2019 do not offset the 9.8 million new households formed during that time and in 2016 we switched to a sellers market in Kansas City (more buyers than available homes to sell them). That’s when prices started rising quickly.
A housing news article that I recently read said even with an above average pace of construction that we have today, it would take builders between four and five years to get back to a balanced market. That means prices will most likely continue rising during this time. The only thing that could change that is unemployment rising above 10% and that’s very unlikely.
So, that means while you’re sitting in a rental home, prices are rising quickly. I thought for sure a pandemic would slow down the rising home prices but that only made it worse. The pressure of low inventory in 2020 pushed home prices to an average increase of 10.29% in Kansas City. For many homeowners, that equates to around $1,000 per month in increased value! Over the past five years home values in Kansas City have grown by 51%. That’s why many buyers can’t save money fast enough. The home prices are actually rising faster than they can save money for their down payment.
If you’re thinking about buying a new home, I hope you’ll call me. It’s never my intention to talk you into doing something you’re not ready for, but we can at least have a conversation about the market and whether this is the right time for you. If you want to talk on the phone or meet in person in my office, I’d love to do that.
In case you’re interested, here are two articles that I recently wrote that might have some additional information to help you make a decision.