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Pamela Grunstein is still thinking about the couple who speculated that the high-priced, chaotic real estate market would surely stabilize in 2022, so they put their house hunt on hold and bided their time.
Grunstein, a real estate agent with Francie Malina’s team in Westchester County, New York, met the couple when their local market was flooded with bidding wars, with offers often running six figures over asking price. While they were eager to find a home for their two young children, they were also concerned that market conditions were so crazy that they would end up overpaying.
“They felt everything was overpriced and they were playing catch-up with the market,” Grunstein said.
Eventually, the couple decided to stop buying a home. Instead, they found a place to rent, even though it was small and had an outdated layout that wasn’t ideal for their growing family.
“They thought it was only temporary-‘We’ll sit back and wait for the market to go down,'” Grunstein recalls.”‘ And then we’ll go back to our house.'”
But the market hasn’t fallen. Instead, home prices in the area are now 25 percent higher than they were when the couple paused to look for a home, and they assume that prices will eventually reverse. They watched home prices continue to spiral upward, then got desperate and, against their better judgment, bought the house they were renting.
“It was not a happy ending for them,” Grunstein said.
Why trying to time the housing market is a terrible idea
In the chaotic housing market of the past few years, many homebuyers may have been tempted to “time the market,” meaning they tried to buy a property when prices were falling rather than peaking so they wouldn’t end up overpaying for the house.
Realtors across the country describe situations like the one Grunstein saw, where buyers decided to wait because they thought prices (or mortgage rates) could only go down from where they are now.
However, the results are rarely in their favor.
On the other hand, brokers also relayed stories of homebuyers who were eager to buy an undesirable home because they thought prices (or mortgage rates) would continue to skyrocket.
Julie Chang, a broker with Pacific Sotheby’s International Realty in San Diego, calls this situation “FOMO buying.
Experts warn that it’s important to be aware of both scenarios.
“Trying to time the market is not a good idea,” says Daniel Hale, chief economist for REALTORS®.” No one has a perfect view of the future. Whether you think interest rates or prices are going up or down, the world may not turn out the way you expect it to. We all have to make decisions in the face of that uncertainty.”
Why fear of overpaying can paralyze homebuyers
To be sure, market conditions have always influenced homebuyers’ decisions to some degree. Over the past few years, home prices have been rising and, more recently, mortgage rates have been on the rise. At some point, this meant that certain buyers simply could not afford the required monthly payments and no longer qualified for a home loan.
Buyers were pushed to the edge of what they could afford and had good reason to cancel their property search. However, homebuyers who are clearly in good financial shape but are simply concerned that they may be paying too much in a fierce market fall into a different camp – and they may very well regret letting their need for a real estate deal keep them on the sidelines.
Many buyers are stuck in limbo, “waiting and watching,” as Chang describes one of her current clients. The man, a young professional, knows that home prices have slowed slightly from their mid-2022 peak, and he’s betting they could drop a bit more.
Higher interest rates have taken him out of the market altogether, but Chang says what really drove his decision was that he didn’t want to buy a house when the market was down because prices had plummeted.
For anyone who fears that, Hale suggests, it may not be as bad as you fear.
“We know from our research that overpaying is one of the biggest fears of homebuyers,” Hale says.” It’s easy to imagine that this fear is especially pronounced as home prices continue to hover near historic highs.”
And, while home prices are expected to ease this year, stubbornly high mortgage rates are likely to keep housing costs high anyway. Homebuyers shouldn’t expect to find a deal in 2023, and the sooner they accept that fact, the better.
“The moderation in home price growth will not be enough to make the housing market a buyer’s fortune,” Hale notes in her 2023 housing forecast.” If homebuyers and sellers have unrealistic expectations, they could find themselves at an impasse in the coming year. the housing market in 2023 could become a ‘nobody’s market,’ unfriendly to buyers and sellers alike.”
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. However, while this “buy low, sell high” approach may work well for luxury items like stocks or flat screen TVs, it doesn’t translate well to real estate transactions. Why? Because a home is usually bought and sold based on day-to-day practicalities – is it close to your workplace? Is it big enough for your family? — rather than current market conditions.
So instead of dwelling on the market, try to focus on the real prize, which is your own personal living situation.
As Hale explains, “Are you ready to live in one place for five to seven years? If the house fits your needs, is within your budget and is one you can live in for the medium term, that’s the best way to set you up for success.”
James Deskins, who runs a real estate brokerage in Columbus, Ohio, called Home Buyer’s Advocate, helped his daughter and husband focus on what was important when they purchased their first home in December. Deskin admits that at first, the market weighed heavily on their minds.
“I said, ‘Look, if you wait, there’s a chance the price will go up,'” Deskins said.” They thought, ‘We should do it now.'”
However, instead of giving in to “FOMO home buying” and accepting any older homes, they waited until they found the right home, one they could afford and that met their needs.
“She didn’t settle,” says Deakins. He thinks it’s critical. It was the house, not concerns about the market or the price, that led to the deal.