Priced Out

What to do when houses become so expensive they’re unaffordable

Buying a house is expensive. In fact, it’s probably the priciest thing you’ll ever buy. That’s why we secure steady jobs and spend years building up our savings accounts until we can afford the perfect place to call “home.” But what happens when, despite how much money you’ve saved, houses become so expensive that you’re totally priced out of the market?

That’s exactly what happened to many hopeful homeowners across the country this fall. According to the latest S&P/Case Shiller Home Price Index, home prices increased more than expected in 20 U.S. cities. The 20-city composite rose 5.5 percent year-over-year in September compared with consensus estimates for a 5.2 percent rise.

“The latest read is a sign that housing continues to show strength as home prices rise at more than double the rate of inflation,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. Those looking to buy on the west coast were hit the hardest. San Franciscans saw home prices rise at the fastest pace, up 11.2 percent from last year. Denver and Portland, Oregon weren’t far behind with home prices having increased more than 10 percent.

It’s news like this that causes many first-time homebuyers to throw in the towel and call it quits. However, with the right approach, there’s still hope for snagging the home of your dreams. Before you resign yourself to a life of renting, read our tips for remaining calm and competitive in the murky waters of a seller’s market.

 Lock in a low interest rate.

We’ve told you numerous times that mortgage interest rates are posed to skyrocket. We weren’t kidding. Lock in a low rate as soon as possible! Aaron Terrazas, a senior economist at Zillow, has forecasted that the 30-year fixed mortgage rate will rise to 5.63 percent by December 2016; to 6.88 percent by December 2017; and to 7.75 percent by December 2018. If you wait another year, it may be even more difficult to afford your monthly payments.

 Get a fixed-rate mortgage.

Speaking of mortgages, don’t be tempted by adjustable-rate loans offering irresistibly low rates. We know – a mortgage with a 3 percent interest rate sounds better than the Black Friday deals at J.Crew. But with mortgage rates inching upwards over the next few years, you’re likely to end up paying significantly more at the reset date than if you’d gone with a fixed-rate mortgage in the first place.

 Make a bigger down payment.

If houses in your target neighborhood are going under contract within days or are selling for more than asking price, you may want to consider putting down more than the standard 20 percent to sweeten your offer. That is, if you have enough cash to spare. Not only will this make you more appealing to the seller, you’ll also avoid having to pay for private mortgage insurance.

 Remember that money isn’t (always) everything.

Inventory is tight, sellers aren’t negotiating, and everything sucks. We get it! But before you completely lose hope, think about what you can offer a seller (besides money) that will make you stand out. Do you have a pre-approved loan from a reliable lender? Say so. How about a big down payment? That helps, too. If you’re ultra flexible about when you close, whether it’s quickly or in a few months, just do it. The more potential headaches you can minimize for the seller, the better position you’ll be in to snag the home of your dreams.

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