Housing analyst Ken H. Johnson has been looking at home prices for decades and he offers this advice to buyers in today’s hot housing market: slow down.
“I would be careful to buy near the top of the market, especially if I only want to be in the house for a few years,” says Johnson, a real estate economist at Florida Atlantic University and co-author of Beracha, Hardin & Johnson. Buy and rent index. “If you’re looking to buy, negotiate aggressively and be prepared to walk away. Real estate is definitely a good investment, but don’t just buy now because that’s what everyone else is doing. .
With mortgage rates at historic lows and inventory tight, home prices are skyrocketing. The National Association of Realtors says the median price of homes sold in October jumped 15.5% from a year earlier and bidding wars have become common.
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Johnson acknowledges that the 2020 housing boom took him by surprise. “I thought the real estate market was going to crash in March,” he says.
While he doesn’t foresee a crash now, he expects home prices across much of the country to plateau. He spoke to Bankrate about the housing market.
Everyone is buying right now. We are clearly coming to the top. So you have to be much smarter about how you buy. You need to do a lot more due diligence. You have to ride in the neighborhoods. Look at sold properties – don’t look so much at what’s for sale as at the prices of what’s being sold.
A lot of people have told me this – “I bought in 2007, all the way up.” I know people are thinking that right now. We are close to the top of the cycle. I will not do it not Buy now. I would just negotiate aggressively. I would put in a lot of due diligence. Shop around for your mortgage rate and make sure you get the best mortgage rate. Spend time searching. Take the time to discover the region in which you wish to live.
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Do not get impatient and get into bidding wars. Don’t be afraid to back out of a trade. There will be another house. You will see houses go under contract and then they will come back on the market after the inspection period. People are freaking out and these homes are coming back on the market.
So, is the housing market preparing for a crash?
We are at the top in much of the country. We are fair. This leads many people to wonder, “Are we going to screw up like we did last time?” There is no sign of this. Last time we had a lot of people in houses that couldn’t afford them. Now we have a bad credit record. He was close to the records in 2006-07. Interest rates were then higher. Today, interest rates are at historic lows.
The underwriting process is much stronger today. Before, if you breathed, you could get a loan. Ultimately, we had a foreclosure crisis. Today it is more difficult for people to borrow money. Their credit is stronger. They’re not going to stray from those houses. We’re just not going to see a huge drop like we did last time. But for these same reasons, we are not seeing a huge recovery. Prices probably won’t crash, but they just won’t continue to rise.
There will be an account to be rendered. I just don’t think it will be far from the count we had last time. Prices will stagnate. Interest rates will go up a bit.
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We have this huge supply shortage, and it’s not going to go away overnight. This is going to help soften that landing. There is a huge inventory problem. In 2006 we had a dramatic oversupply. But nothing was built for nearly eight years. Getting municipal and county approvals is much harder than it was 15 years ago. The shortage of supply is helping to keep prices high.