Happy House Hacking Podcast EP 39: Waiting to Buy? You Could Be Losing Thousands!

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When to Buy a House: You Could Be Losing Thousands!

Deciding when to buy a house is one of the biggest financial decisions many people, especially first-time home buyers, will make. It's natural to want to make the "right" move by trying to time the real estate market, and people often wonder if waiting for lower prices or interest rates is the best strategy. 

At The Schwaegerle Team, we believe that timing the real estate market is often a losing game. On a recent episode of our Happy House Hacking podcast, we discussed why waiting out the market can actually lead to significant financial losses. Learn about the factors that influence housing supply and demand, along with data-driven insights to help you understand when to buy a house.
 

The Real Cost of Waiting

To show the cost of waiting and the impact of housing market trends, consider a buyer who worked with our lender partner. In 2021-2022, they were nervous about bidding wars and high prices, so they waited to buy a home.   

This cost them dearly. They spent about $3,000 a month on rent, totaling nearly $70,000, with no return. Plus, homes they wanted appreciated by $50,000-$70,000.   

In total, waiting cost them $140,000-$170,000! This shows it's urgent to consider when to buy a house. As Owen Schwaegerle emphasized, "...whether you're five weeks out from buying a home or even five years out from buying a home, you need to make a game plan to get there." Understanding housing market trends is key, especially for first-time home buyers. 

Understanding the Current Market

Understanding the dynamics of the current market is essential when considering when to buy a house. A key factor is thinking about whether it's a buyer's market or a seller's market. These conditions are largely determined by housing supply and demand.

In a buyer's market, the inventory of homes for sale is six months or greater. This means that if no new properties were listed, it would take at least six months to sell all the existing homes, based on the current rate at which homes are being sold. 

A seller's market, on the other hand, has less than six months of inventory. In this situation, homes tend to sell more rapidly, and prices may be driven upward due to increased competition among buyers. With that said, the market currently favors sellers.

A Look at Historical Housing Market Trends

​​To understand housing market trends and housing supply and demand, it's helpful to look at past data. For example, in San Luis Obispo County, 2008 was a strong buyer's market with many homes for sale but low demand due to economic struggles.   

Around 2012, housing market trends shifted, and the market became a seller's market, with fewer homes available. This shift, along with the COVID-19 pandemic, decreased the supply of homes even more, which significantly impacted prices.   

In San Luis Obispo County, when there was high supply and low demand in 2008, prices dropped from about $500,000 to around $300,000 by 2012. As the economy improved, prices rose again, while the number of homes for sale decreased.   

This illustrates how housing supply and demand can affect home prices significantly. We advise all buyers, especially first-time home buyers, to use data like this to guide their decisions on when to buy a house, rather than relying on media hype. 

The Underlying Reasons for Low Inventory and High Prices

Several factors contribute to the persistent low inventory and high prices we're experiencing, impacting housing supply and demand. These factors influence housing market trends and, consequently, decisions about when to buy a house.

Homes Built vs. Population Growth

A significant factor influencing housing supply and demand is the relationship between homes built and population growth. The "baby boomer" generation (born after World War II) caused a considerable population increase in the 1950s and 1960s. In response to this surge, housing construction expanded dramatically, with over 20 million housing units built per decade to accommodate the growing population.   

However, in the 2010s, the number of homes built dropped to 6 million. Despite this decline in construction, the population continued to grow, with 27 million babies still being born in that decade. Consequently, the United States faced a shortage of approximately 20 million housing units, and we have yet to catch up with the demand. 

The Three L’s

Beyond the dynamics of housing supply and demand, several input costs significantly impact the overall expense of housing. These are what we refer to as "The Three L's": lumber, labor, and land. Each of these factors contributes to the cost of development and influences housing market trends and decisions about purchasing a home.

• Lumber: Lumber prices experienced a dramatic surge in 2021 due to supply constraints. For example, Owen explained “You could have built ten houses with $50,000 worth of lumber. One year later in 2021, due to some supply constraints, $50,000 worth of lumber could only get you two and a half houses.” While lumber prices have decreased since their peak, they remain higher than pre-pandemic levels, increasing overall building costs.   
• Labor: The construction industry faces a shortage of skilled tradespeople. With fewer people entering the trades, labor costs have increased, further contributing to the expense of building new homes.   
• Land: Land value, particularly in urban areas, is a significant component of real estate prices. As development increases and land becomes scarcer, its value increases. 
  
  
  
  

Real Estate as a Wealth Builder

Despite short-term ups and downs, real estate has generally been a good long-term investment. This is important to remember when considering when to buy a house.   

In 1960, the average house price in the US was $19,000, compared to around $400,000 today. Even during recessions, home values have tended to increase. This is because real estate protects against inflation: unlike cash, its value usually keeps up with or exceeds inflation. We encourage all buyers to think long-term and consider that homes tend to increase in value. 

Debunking Media Fear-Mongering

It's important to be cautious of sensationalized media headlines that can create unnecessary fear and anxiety about the housing market. We've seen numerous examples of negative predictions that ultimately proved to be inaccurate. 

For example, in 2015, a headline warned of a housing bubble larger than in 2006, yet home prices continued to rise. Similar predictions in subsequent years also failed to materialize.   

Relying solely on news and social media can lead to misguided decisions. Instead, you should focus on local economic and real estate data, which provides a more accurate reflection of housing market trends.  

Seizing the Opportunity in Today's Uncertainty

Figuring out when to buy a house is a complex decision, but timing the real estate market often leads to missed opportunities and financial losses. Housing market trends are influenced by various factors, including housing supply and demand, population growth, and the costs of lumber, labor, and land. Taking action and creating a well-informed plan is crucial for anyone, especially first-time home buyers, looking to build equity and achieve financial stability.

At The Schwaegerle Team, we understand that navigating the complexities of home buying can be stressful. We encourage you to listen to the rest of our Happy House Hacking podcast to stay updated with current trends and real estate advice!