In a hot market, should you wait to buy a home?

There are factors to consider

With interest rates near zero amid the pandemic, the American housing market has reached a bubble-worthy level of insanity. Prospective home buyers are in bidding wars across the country.

When interest rates are low, homes may seem more affordable. But does it make sense to finance a home when the market is so hot that people are willing to pay upwards of $100,000 above listing price?

There are a few considerations in whether to buy now or wait until the market cools:


Real estate is highly local. If the city that you are buying in is undergoing more economic development and job growth, then it may  make sense to buy now at a lower interest rate.

This is because prices are likely to keep going up. It may seem hard to imagine, but if a city or town continues to experience growth in employment and opportunities, home prices in the area will keep rising in step with those market conditions. So what was a million dollars in August 2020 can now be $1.3 million by Spring 2021.

For example, in Austin, Texas, home prices will likely continue climbing. Many people are moving there due to larger forces like major corporations deciding to relocate their operations to Texas as a result of the pandemic-commuting induced geographic arbitrage - people who are commuting less can be located anywhere.

Your personal math

If you are not waiting for the bubble to burst, then the decision to buy now would depend on how irrational you feel. When homes can sell several hundred thousand dollars above their list price, you’d have to ask can you truly afford this?

There is definite emotional frenzy and racing hearts when it comes to bidding wars. Winning the house almost feels like sport. You think you can manage the mortgage since all the math looks ok to your lender, but is it really worth it?

A good rule of thumb is to avoid paying more than 35-45% of your monthly income on your mortgage. If you are above this, better to stay idle even in an upwardly trending market.

As part of personal math, interest rates should be acknowledged. If the base price of the house is very high, like in a million dollar city, then it could make more sense to overpay for the house when interest rates are low as opposed to waiting. You’ll have to do the math.

Fluctuation tolerance

People who have survived depressions and bubbles know that even this hot market shall pass. As of 2021, in the post-vaccination pandemic world, we know that the crazy home costs are related to low interest rates, relatively lower inventory, and peculiar buyer demand (suburbs are outcompeting city homes).

Idiosyncratic forces affect housing prices as well: the American election in 2020 and other local factors created a relative dip in pricing in some locales.

From the standpoint of pure survival, when conditions go to their extreme, it often makes sense to do nothing. Choosing not to play or enter the market at this time could be the wisest decision you will ever make. There is a chance that as interest rates climb back, the housing prices may adjust downwards.  

After the current scarcity, emotions, and uncertainty subside—and we return to a more normal existence—there may be an opportunity to buy a home at a reasonable and fair price.

So depending on the local economic conditions of where you live in the context of interest rates, your own financial situation, and your ability to weather a storm, waiting may make more sense than buying.

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