Should I buy a house now or wait until 2020? New research from JCHS shows a strong housing market, but not without its challenges for homebuyers.
Harvard University’s Joint Center for Housing Studies (JCHS) delivered an in-depth analysis of America’s housing market in its State of the Nation’s Housing 2019 report. And for those of you on the fence, information gleaned from the report helps potential homebuyers answer the question: Should I buy a house now, or wait until 2020?
The report shows a strong housing market, but one with challenges, primarily around issues relating to housing inventory and affordability.
Finding a House to Buy a/k/a the Housing Inventory Issue
Here’s the bottom line: The new construction industry has been in a depression since the Great Recession in 2010. The number of new homes constructed technically reached its nadir in 2011 when just 633,000 new units were added to the national housing supply. Since then, additions to housing inventory have grown at an average annual rate of just 10 percent. Although there are steady gains each year, completions and placements totaled only 1.2 million units last year. That’s the lowest annual production, excluding 2008-2018, going back to 1982.
The sluggish recovery in housing construction is in part a response to persistently weak household growth after the recession, which did pick up to 1.2 million a year in 2016-2018. But it is also a function of weak demand (on the part of home buyers) and new (and much more stringent) banking rules that made it tougher for developers to get financing for new subdivisions.
Today, the pace of new construction is barely keeping pace with household growth, resulting in a national vacancy rate for both owner-occupied and rental units falling to 4.4 percent in 2018, its lowest point since 1994. In sum, we have a housing deficit of millions of homes: Millions of new homes that should have been built over the past 9 years weren’t and as a result, there are too many buyers chasing too few homes. Which leads us into the next big housing issue plaguing the real estate market: Affordability.
The Reality of Housing Affordability When Buying a House
Home prices have risen year-over-year for more than 80 consecutive months. In 2018, home prices climbed 5.9 percent, slightly faster than in 2016 and 2017. According to JCHS, “The tight supply of homes for sale is keeping the pressure on prices in much of the country, while high land prices, labor shortages, and restrictive land use policies limit development of moderate-cost housing.”
Whether a home is affordable depends a lot on where you’re looking to buy. Home values are more than 5 times median household incomes in roughly one in seven metro areas, located primarily on the west coast. Think San Francisco and Los Angeles, among other California destinations. Want a more affordable area? In one-third of Midwest and South metro areas, home values are less than 3 times median household incomes.
Should I Buy A House Now or Wait until 2020?
When do you want to move? When do you need to move?
At the end of the day, there are too many variables unique to your situation to give a simple yes or no answer to this question. But start with your job and think about how far from your job you want to live If you can easily find a job in another location, then decide where you want to live first. Pricing comes next: check out the housing market in the area you’re looking to buy a house and see what homes are selling for now and how those numbers have fluctuated over the past few years.
You’ll also want to look at your debt-to-income (DTI) ratio. JCHS notes there has been significant growth in mortgage loans exceeding the 43 percent DTI limit. A report from the Urban Institute found the share of Fannie Mae loans with high DTI ratios more than doubled from 13 percent in 2013 to 29 percent in 2018, while the share of Freddie Mac loans was up from 14 percent to 25 percent. Ideally, aspiring homeowners should have a DTI ratio that is at or below 36 percent of gross monthly income.
Making the Decision to Buy a House Now or Wait Until 2020
Whether or not you should buy a house now or wait until 2020 also depends on your current living situation. Rents rose at an annual rate of 3.6 percent in early 2019, or twice the pace of overall inflation. National rental vacancy slid from 7.2 percent in 2017 to 7.0 percent in the first quarter of 2019. If you’re renting, have your down payment ready, have kept a lid on your DTI ratio and are buying in an affordable area, it might be a good idea to buy before your landlord hikes the rent up when your lease renews.
If you’re already a homeowner, the aggregate value of home equity more than doubled between 2011 and 2018. You may want to sell your current home to benefit from its positive equity, which might affect your decision to buy now or wait until 2020.
Your decision also depends on the type of home you want to buy. If you have your heart set on a specific style you’ll want to keep an eye on the inventory that’s available. With a limited housing supply, waiting might mean missing the opportunity to buy the mid-century modern home of your dreams. Of course, then you’ll have to look at your budget and decide whether to put in an offer or wait indefinitely until more units are available in your market.
More on Buying a House
When is the Best Time to Buy a House?
What Mortgage Can I Get Approved For?
Should I Stretch My Budget to Buy a House?
Two Expenses That Often Surprise New Homeowners
How to Buy a House with No Regrets
How Much Can I Afford to Spend on a House?
On July 14 you addressed disclosure. Moving to Chicago from WI we found the rules to favor the seller. The seller (a realtor) threatened to sue me after the Cook county judge accused me of trying to practice law in small claims court because I used proper legal terms. My claim re hidden sheets of plywood cut into the hardwood floors was dismissed. The Real Estate Board reached out to me to file a complaint for unethical practice – we won. There is justice.
Thanks for sharing. It’s upsetting to think that a judge would hurl an unfounded accusation at you (trying to practice law) simply because you know some legal terms. Heck, anyone who has watched LA Law or Good Wife (or Suits or any of the other dozens of legal genre TV shows) might be similarly inclined – these terms have entered everyday lexicon). I’m glad that you got some justice in the end. Disclosure laws are tough and require a high burden of proof (oops – now I’m using legal terms) for the buyer.
Enjoy your new home.
Ilyce Glink, Publisher
I used to love your podcast. I never have time to read and. Is your podcast still available? None of the old links work.
I think that when iTunes switched out recently, all of the old links disappeared. So, I don’t think they’re there anymore. We were trying to get them back, but it’s been pretty tough.
So, long story short, it may all be gone. I’ll post here if we’re able to redirect those links.
I have been a guest on many other podcasts recently. Here’s one I recently did: https://podcasts.apple.com/ca/podcast/best-money-moves-with-ilyce-glink/id1446636831?i=1000435249434
You can follow my Facebook page facebook.com/IlyceGlink for updates.
I needs some advice. Due the spring of 2018, I tried to purchase my first home but I had to walk away because the seller didn’t want to come down on the price…based on the appraisal. So, I returned back to renting. Now… I will complete my tenure-track in 2022 and would like to purchase my one and only home… preferably new construction. My question is…as a single person without kids (and won’t have kids at 41)…how much home should I purchase if this will be my one and only home?
Dear Dr. ADL:
The real question is, how much home do you feel like paying for and maintaining? Do you want to have a mansion with 10 bedrooms and bathrooms? Can you afford that? Or does a smaller 3-bedroom condo with a great view seem more your style.
And, while it’s great to think this will be your one-and-only property, what happens when you retire in 25 years or so? Will you die at your desk or will you develop some interests that you want to pursue elsewhere.
I think it’s unlikely you’ll be living in this first home for the rest of your life, but certainly if you are, think about what it will be like to age in that home. Stairs could be a problem in 30 years, for example.
Since it’s your first home, I humbly suggest reading my book 100 QUESTIONS EVERY FIRST-TIME HOME BUYER SHOULD ASK (4th Ed.). I will walk you through the process of thinking about this first home and how to figure out what’s really important to you.
Good luck with the house – and with your tenure.