Springtime means warmer temperatures, blooming flowers—and prime real estate season. However, the market is different every year, and spring 2018 is a uniquely challenging time for buyers, especially those looking for starter homes due to low inventory, higher prices and rising interest rates. Here, Trulia offers some smart choices and tips that can help homebuyers in this spring’s tight housing market.
Adjust your expectations
With high demand and plenty of competition, prices are rising for starter homes to the tune of 9.6 percent more this spring compared with last year. Trade-up and premium homes also are more expensive this year—7.5 percent and 5.2 percent more, respectively. If you’re looking for a starter home, consider older or smaller options. Even better, look for a fixer-upper. There are 8.3 percent more fixer-upper starter homes than there were six years ago. That’s good news for anyone willing to put a little elbow grease into their investment.
Don’t get too discouraged about rising prices
Compared with historical housing costs, homes today actually are more affordable than they were in past decades because of mortgage rates. To take out a mortgage loan in the 1980s, you’d likely pay up to 16 percent in interest—compare that with today’s mortgage rates of around 4.5 percent. For a $200,000 loan, at 4.5 percent interest, you’d pay $1,013 a month (before taxes, insurance and other fees), but with 16 percent interest, you’d pay $2,690.
Finding the right neighborhood matters
Trulia research shows that homeownership is dropping in some neighborhoods and remaining steady in others, even within the same city. Many homebuyers prefer neighborhoods full of homeowners, so figuring out the character of an area is essential. Here’s a tip: Hot spots for homeownership share one attribute—increased household incomes.
Research neighborhood demographics to pinpoint median incomes and homeownership rates.
Arrange your financing
If you wait until after you’ve found a home to start the mortgage pre-approval process, you might lose the home in this market to someone who already has aligned their financing.
To be successful and not make a rash decision, be as prepared as possible before you start looking by knowing the type of home and neighborhood you desire.
Put down a decent amount of earnest money
The more earnest money you contribute, the more serious you look to the seller. So, on a $400,000 purchase, be ready to put up $7,500 to $10,000.
Be prepared for bidding wars
Fortunately, bidding wars aren’t always just about money. A shorter closing, willingness to rent the house back to the seller, a super-quick inspection period and offer letters can help make a lower offer the best offer.