How to manage financially for rising home prices
Zach Wichter Bankrate.com If you’re trying to break into the housing market right now, you may find that your down payment fund isn’t going as far as you thought it would. Record-breaking rises in home prices mean the targets you set to save, say, 20 percent of your expected home purchase price may no longer cut it. Here’s what you need to know about what’s going on in the housing market and what your options are for how to proceed. Why home prices are likely rising faster than your down payment savings It all comes down to a few factors: limited housing supply and a huge number of motivated buyers are putting pressure on housing prices. Low mortgage rates mean most buyers can afford to borrow more than they otherwise would, which is turning up the pressure even more, and inflation is pushing buying costs up for pretty much everything across the board. Sellers are rejoicing, but for buyers (low mortgage rates aside) it can be tough terrain to navigate. “This last year has been brutal, particularly for the first-time homebuyer market,” says Matt Woods, co-founder and CEO of SOLD.com. Most experts agree that the pandemic has led to a tough market for buyers, but there are signs that things may finally be cooling off. At any rate, this nearly straight up trajectory Contractors Guide | FALL 2021
for home prices seems fairly unsustainable. “I think about my four kids, how on earth will my four kids ever be homeowners if this is the conundrum they’re dealing with?” Woods says. What you can do if your down payment savings aren’t keeping up There are essentially three ways you can respond if your dream home — or even a barely adequate home — is out of reach. 1. Wait out the home sale market, beef up your down payment Probably the easiest option — because it’s essentially passive — is to just wait for the market to cool down more. Doing that can give you the opportunity to boost your savings, and you may even see home prices come down a little in your area, which means your funds will go farther. Keep in mind, there are no absolute guarantees in real estate because market conditions are always changing, but if you can’t afford to buy now, it’s probably not a good time to dive in. “The biggest thing to start with is just to make the decision on whether now is the right decision in terms of buying the home,” says Robert Heck, vice president of mortgage at Morty. “If you have flexibility and time, the options there are a bit more widespread.” Focus your affordability calculations on your monthly expenses, not necessarily the overall sale price, he says. Bankrate’s “how much house can I afford?” 22
calculator can help you get started. “This home appreciation phase is waning,” Woods added. If you choose to wait it out you can use the time to invest money in higher-yield — and, admittedly, higher risk — funds to boost your savings more quickly. “Putting money under your mattress isn’t going to help,” he says. “If you’re parking it in the safest place, you can count on it not helping and not growing. If you’re leveraging the investment opportunities that are out there, the market’s been kind.” Because the investment market is so hot right now, you may even be able to boost your savings quickly with some higher-risk options. But let’s be clear that money you need in one to three years is not best-suited for riskier investments. That said, if you can stand more risk, consider investing some of your down payment money in: • Stocks, which are arguably the most traditional investment tool and can produce big yields quickly if you buy the right ones at the right time. • Cryptocurrency, which is kind of having a moment in the investment sphere right now. Keep in mind that crypto valuations have been a bit of a rollercoaster, so you could majorly boost your savings, or lose your shirt. You should speak to your financial advisor about your investment options. Other shortterm, high yield products may be available, but you’ll want to decide what works for you with someone who really knows your situation.
