The housing market is booming in a number of ways, aided in part by a new generation of prospective homebuyers coming of age and having greater access to mortgage credit at a lower cost. These and other factors have resulted in an increased demand for single-family homes across the board.
Although these trends are excellent means of bringing in business for real estate agents, they do not bode well for those who are actually trying to purchase a home, as demand is far exceeding the supply the American market has to offer.
This is largely due to the Great Recession of 2008, which led to a foreclosure crisis that swept the nation. Subsequently, developers purchased these foreclosed single-family homes and transformed them into rental properties. Because of this shift, there are approximately 15 million single-family rental units in the United States — a sizable increase from just 11 million in 2009.
However, now that the economy has shown signs of almost total recovery and unemployment rates are at a 16-year low, the once wary millennial generation is finally coming into its own. Although this generation is still notorious for delaying major milestones such as marriage and parenthood, experts are forecasting a steep increase in household formation over the next five years, with 1.30 million to 1.35 million emerging annually — which is over 30 percent higher than the long-term average.
In other words, millennials are going to be leaving their apartments in favor of single-family homes. Unfortunately, given the large number of prospective buyers entering the market, competition for the few desirable homes that are listed will be more intense and fast-paced than ever before.
For example, real estate agents have been reporting upwards of 60 bids on a single home, meaning prospective buyers are no longer window shopping, but showing an astounding uptick in enthusiasm and willingness to compete.
Unfortunately, these qualities often lead to bidding wars on popular properties. Although this is often a simple way to weed out buyers who are unsure or not serious about purchasing a particular home, it often harms those who remain in the competition, seeing as it drives up costs and harms affordability in the long run.
If you are actively searching for your first home, it is important to remember to maintain a firm grip on your standards, your emotions and, most importantly, your budget. Acting out of sheer desire to outbid another buyer or purchase a home that would normally be outside of your means will invariably cause more harm than good. Therefore, it is best to hang back, watch the market closely, and wait for the right time to strike. You will thank yourself for your sensibility later.