Lesley Brey
Reporter
Looking to buy a house after graduating? You may want to wait. In a year marked by extreme economic turbulence, one of the few markets showing consistent growth has been housing. However it’s coming at a hefty cost: low inventory, high competition and overvaluation.
According to Norada Real Estate Investments (NAR), 5.64 million homes were sold in 2020, the highest number since the great recession of 2008. Furthermore, the trend shows no sign of slowing as increasing numbers of millennials enter the housing market. This could prove problematic for first-time buyers for a number of reasons.
The first major issue is the lack of buyable homes. There are not enough homes on the market to meet the demand of consumers, however it’s not as simple as there just being a low number of sellers. Houses are being snatched up at alarming rates; in 2020 the average home in the Northwestern U.S. spent only 25 days on the market according to Zillow.com. Very few first-time buyers would be in the financial situation to build a custom home, leaving them with scant other options.
The next issue buyers face is competition. Buyers are bidding against other buyers for houses that would normally not be as sought after. Some buyers are trying to gain a leg up by offering more than the asking price, offering more cash up front and even going so far as to waive certain types of inspections and pre-sale repairs, all for the chance to own property according to Marketwatch.com. BusinessInsider.com found that a lot of the competition is being driven by new-money millennials jockeying with recently retired baby boomers looking to downsize. Both groups have access to better credit and more immediate funding than your average recent college graduate.
These two issues combined result in the last, but arguably most problematic, issue: massive overvaluation. Supply vs demand is basic economics, however its effects could not be seen more clearly than in the current housing market. With so many buyers and not enough inventory, what houses are available are appreciating in value like it’s going out of style. Zillow Economic Research predicts that annual home value growth will rise as high as 13.5% by mid-2021 and for home values to end 2021 up 10.5% from their current levels. Put in other terms, people are paying more for significantly less.
So, no matter which way you split hairs, the options are looking bleak. Until either new construction ramps up or housing demand lessens, the market is projected to stay on this trend says the NAR. However, if you are determined to buy a house immediately out of college, there are still ways to make it happen.
Investopedia recommends starting to save as soon as possible. While this may sound next to impossible if you’re still in school, try reserving a set percentage of every paycheck for a down payment fund. Many banks and credit unions offer higher interest rates for certain types of accounts, such as house, car and medical savings accounts. The downside being that you will likely not be able to withdraw that money in an emergency without facing steep penalties. When it comes to how much you’ll need saved, 20% is required to avoid paying extra mortgage insurance fees, according to Investopedia.
