How things have changed over the years! The recent real estate market has been flooded with buyers but lacking inventory. There just aren’t enough houses for the buyers. This leads to some crazy negotiations when buyers find their perfect home and realize another buyer is interested as well. This is how a bidding war begins.
Rewind a few years to 2007 when we saw a the housing market bubble burst in a big way. During the years that followed, many homeowners couldn’t sell their homes for what they owed on it if they could sell at all. However, over the last 4 years, we have seen a recovery in the housing market. The National Association of Realtors (NAR) reports that home prices have exceeded the peak set back in 2006 before the recession.
It’s interesting to look at the differences between 1950 and present day market trends…
- Median Home Price – $7,354 which would be approximately $44,600 today due to inflation
- Average Square Footage – 1,000 usually consisting of 2 bedrooms and 1 bathroom
- Average Family Size – 3.37 members
- Median Home Price – $236,400
- Average Square Footage – 2,500 consisting of at least 4 bedrooms and 3 or more bathrooms
- Average Family Size – 2.5
As you can see, the median home price is over 5 times more than it was in 1950, and people are looking for homes with over twice the square footage. All of this while the average family size has decreased!
Why are we buying more?
One explanation would be the ease of borrowing money now versus back then. Many years ago, the length of a mortgage was on average 5-10 years. Today, it’s not uncommon to have a 30 plus year mortgage which spreads out the price of the home making monthly payments lower.
Another factor that played into the cheaper home prices was the down payment. In the 1930’s, the most a home buyer could borrow for a home was 50% of the purchase price. That would definitely have an impact on how much home you could afford!
In the years leading up to the 2007 crash, buyers were able to borrow MORE than the value of the home, purchase with little to no down payment, and lenders standards were much looser. We also saw Adjustable Rate Mortgages (ARM) gain popularity when buyers had trouble qualifying for a fixed rate loan.
What can we learn from our past?
While a housing market crash is always a possibility, the way to make it through is to follow some simple rules:
- Live within your means. Just because you “qualify” for so much doesn’t mean you need to spend that much on a home. You know your finances, so be smart with your purchase.
- Bigger isn’t always better. Again, live within your means. Too much house is more to clean, more to heat/cool, and just more money. Figure out how much home your family could comfortably live in, and don’t go overboard on the square footage.
- Be smart when it comes to financing. There are many types of home loans available. Find a lender you trust, and go with the one that best fits your needs rather than the one that SEEMS to leave you with more money. You will find that more money in the bank each month may also mean a longer life of your loan which could lead to paying more for the house than you originally planned.
Of course, the best advice is to find an experienced real estate agent that will help you find what’s best for you. You need an agent you can trust to lead you down the right path. If you have yet to find the right person for the job, we would love to have the opportunity to meet with you. Not only do we offer you the benefits of working with an entire team of professionals rather than a single agent, but we spend endless hours studying the market trends so we are 100% ready to go to work on your behalf. Call us today @ 720-593-2014.