Real estate prices have skyrocketed in recent years. Between June 2020 and June 2022, the median home selling price skyrocketed by over 70%, according to Redfin data.
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These price increases are enough to discourage potential buyers from entering the market. According to the 2021 ServiceLink State of Homebuying Report, up to 33% of people who had considered buying a home in the past year decided against it.
But as the market begins to cool, you may be wondering if now is a good time to buy. If so, how much budget should you plan for?
To answer these questions, GOBankingRates spoke to two real estate experts about how much they would pay for a home in today’s market.
When the Market Cools Down, How Much Should You Pay for a Home?
Beatrice de Jong, consumer trends expert at Opendoor, says she’s already seeing signs of a slowdown in the housing market.
“However,” she warned, “I think buyers can still expect high prices and mortgage rates, at least in the summer.”
Nicole Rueth agrees. As senior vice president and producing branch manager for The Rueth Team at Fairway Independent Mortgage Corporation, Rueth sees overpriced homes sit on the market an average of 28 days, while low-priced and well-staged homes sell within four days.
“Overall, households are seeing fewer showings, fewer deals, and fewer deals that overcharge,” she said.
Of course, the exact amount you can expect to pay for a home depends on many factors, including your location and the condition of the property. However, there are some general guidelines you can follow to ensure you are on a reasonable budget.
Plan to pay more than the listing price
Although the real estate market seems to be cooling off, many buyers are still buying houses above the asking price. Therefore, it’s a good idea to focus on houses that are listed slightly below your price cap in case you need to increase your bid.
“For the past two years, houses have mostly sold at or above list price,” de Jong said. “We see that everywhere – and not just in cities. There was also a widespread boom in the suburbs. As such, contingent and cash offers have become increasingly common and continue to dominate when it comes to winning a bidding war.”
Save enough to cover additional expenses
The price of the home shouldn’t be the only expense you plan for; There are several others to consider. For example, if you bid over the asking price and the home appraisal is under, your lender will likely only take the estimated amount. That means you have two choices: walk away or cover the gap out of pocket.
“If a buyer is looking for the perfect home, they should set aside an additional $25,000 to $50,000 for valuation gaps if they bid in excess of demand,” Rueth said. “Apart from that, buyers will need approximately $7,000 to $10,000 for closing costs, which include a lender fee, an appraisal, a credit report, title fees, the first year of homeowners insurance, and two months of escrow (property taxes and insurance).”
In addition to closing costs, de Jong encourages buyers to plan for a home inspection and home maintenance and repairs. According to the U.S. Department of Housing and Urban Development, the average home inspection costs $300 to $500, and a HomeAdvisor survey shows that the average homeowner spent $13,138 on maintaining their home in 2020.
Don’t wait for falling prices, stick to your financial limits
It might be tempting to wait and see if property prices fall before buying, but de Jong recommends sticking to your needs and budget rather than trying to time the market.
“Stick to your financial non-negotiations,” she said. “If the current market is not conducive to your budget, then don’t push yourself unnecessarily. Therefore, research your options to find the best financing product for you.”
Rueth strongly recommends not waiting. Eventually, as buyer demand continues to slow, supply will continue to increase, giving buyers more options. This means that now is a good time to buy a home and start building equity.
“Know your numbers, your budget, your down payment and your limits,” Rueth said. “Go in with your eyes open; and if you see a house that’s been on the market for more than a weekend, see it as an opportunity to bargain!”
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