Why First-Time Homebuyers Shouldn’t Beware

If you’ve been looking at the housing market this year, you know it’s been a crazy situation in most of the country.

Homes tend to sell above list price within days, if not hours. Would-be homeowners must make as-is offers without the normal safety measures if they want a shot at buying.

So if you’re a first-time buyer, what should you do? You might think it seems safer to wait until the market cools off… but you’d be wrong.

If it feels like a sellers’ market, well, it is. But as I’ll share today, that doesn’t mean a crash is imminent. And if you’re looking for your chance to buy, waiting will likely cost you a lot of money.

Let me explain…

“My daughter and her husband are looking to buy a house in the Jacksonville, FL area in the next 6-12 months,” a DailyWealth reader recently wrote in…

“They are worried that they might be buying into a ‘sellers’ market’ and paying too much. What advice can you give to young couples (or anyone else for that matter) looking to buy?”

First-time homebuying is scary, even in a normal housing market.

It’s the first major financial decision for most folks. And screwing it up – making a poor choice at the wrong time – can have long-term ramifications.

Given that, and given the craziness in the housing market, it might seem reasonable to sit things out for a bit.

It’s the easy thing to do. But it’s probably not the right thing to do…

That’s because it’s not wild speculation driving the boom. This isn’t 2005, when it felt like everyone was buying investment properties to flip and leveraging themselves to the max.

Instead, we have a simple case of supply and demand. Regular readers know the story… There are a lot of buyers chasing a limited number of available properties. That, by definition, makes it a sellers’ market.

But importantly, you shouldn’t expect this to end anytime soon… According to a recent Rosen Consulting Group report, U.S. builders added 1.5 million new housing units per year from 1968 to 2000. But since 2001, that number fell by nearly 20%, to 1.225 million per year.

That might not seem like a huge deal. But it means building over the last 20 years was down 5.5 million housing units. And that’s during a time when the U.S. population grew by nearly 50 million people.

This is the real reason housing supply and demand has gotten so out of whack. There simply aren’t enough homes to go around… And there are more people than ever chasing them.

If building doubled from the 20-year average – which it almost certainly won’t – it’d take six years to make up the 5.5 million shortfall. The truth is that it’ll likely take much longer. And that’s a big reason why today’s market is so crazy…

The number of existing homes on the market hit an all-time low in January. And while that number has risen since, we’re still 14% below levels we saw this time last year.

I realize that this makes it tough for any buyer in today’s market. And if you’re a first-time buyer, it’s especially scary. But don’t let that fool you into inaction.

The craziness from earlier this year has already cooled off a bit. But I don’t expect we’ll see a true buyers’ market – like the one we had a decade ago – anytime soon.

That means that if you want to buy, you shouldn’t put it off too long. Of course, you shouldn’t go crazy and pay more than you can afford… But don’t give up either.

The long-term economic situation means that prices will only rise from here. And that will make waiting an expensive decision.

Good investing,

— Steve

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Source: Daily Wealth