My husband and I have purchased and sold several homes, during our 15 years together, and ultimately we made some smart choices, and some bad ones. If we had a crystal ball, and knew what the housing market was going to become, we would have purchased the largest home we could have afforded, and stayed put! The housing market pre-Covid (and during), was a very different beast, than the out of control monster it currently has become (and likely will stay).
During Covid, the insanely low interest rates, prompted a ton of buyers to enter the housing market, who all competed for a comparatively limited supply of homes, and drove up prices by approximately 50% in just a 2-3 year time frame. Never before, in the history of the housing market, have homes gone up by that much, in such a short amount of time!
The problems that really sent the housing market and it's potential buyers, into despair, occurred post-Covid. That is when interest rates tripled, practically over-night, making those homes that had increased in price by 50%, utterly unaffordable to most Americans, especially for first time home-buyers. Keep in mind, that salaries/wages did not increase proportionally with housing prices/interest rates. And on top of housing prices, the price of pretty much everything else, also inflated post-Covid.
Compounding the problem, is that most people either purchased, or refinanced at interest rates at or below 3%, and were/are not willing to let those low rates go, making inventory severely constrained. There are still more buyers than there are houses, which is why home prices are not only not going down, the homes that are listed are still being bid up, and often getting well over-asking price. This issue of supply versus demand, is not going to tilt in buyer's favor anytime soon, no matter how much people hope it will.
Since we will likely never see the ultra low interests rates we did during Covid, it is unlikely that this inventory problem will course correct. No one, is going to want to let go of those low interest rates (unless they have to move). There will still be more buyers than there are homes available, and desperate people will still pay the inflated home prices, or even over-asking, in order to compete with and beat out other buyers. Those sitting on the sidelines, hoping to wait out the market, or who are waiting for the bubble to burst, well I'm sorry, but it's not going to (for all the reasons stated above).
I recently read a real estate post, that stated something to the effect of: "It's ok if you don't love your starter home, it's temporary." I think that is unrealistic, and terrible advice. With the current home prices and interest rates, your starter home very well might end up being your forever home. People who bought a "starter home" at interest rates below 3% probably are going to stay put, and do everything in their power to make that home, their "forever home".
Gone are the days, where the middle class can afford those big, expensive "YouTube-worthy" types of homes, that convinced us all, that's the kind of homes we should all be living in by the time we reach 40 or we are failures. Heck, I have plenty of friends who do own big/fancy homes like that, because they bought when houses were still cheap...but I bet most of them wouldn't be able to afford to buy their own home now!
In fact, the new average age for first time home buyers, will likely be 35-40. I see a bleak future, with lots of children, living with their parents, roomates, or in rentals for many years longer than previous generations.
Up until the Covid insanity, my husband and I could have easily afforded a larger home, but we opted to "live small" and below our means (if only we had known what the future held). We often purchased homes, improved them, then sold them for a profit (kind of like house flipping, but on a minor scale). Then we purchased a small home, just before prices rose even more, at a nice low 2.5% interest rate. The problem? We were a family of five, living in a very small 3 bed, 1 bath home, and we wanted more space!
We sold that house (mistake), took on a 6% interest rate, and doubled our house payment, and for all that expense, we only got a little more space (cue the despair)! We weren't able to save any money, so once we had improved the home as much as we were willing to, we sold it, at a profit, after just one year. That profit, helped us to break even on a much more affordable home, that we were lucky to get a lower interest rate on (nowhere near 3% though). *Shopping lenders is very important!*
So, here my husband and I are in our 40's, and our "forever home", is going to be what was just a few short years ago, most people's starter home. What we have ultimately learned from so much buying/selling, is that we want the lowest house payment possible, and will gladly sacrifice having a large/impressive home, in order to have more money to live on, and to better provide for our children.
Do we regret not buying a larger home, back when we could have afforded one? You bet! But hindsight is 20/20, and no one can see into the future. I don't think anyone really foresaw the utter nightmare that has become the current housing market, so we try not to be too hard on ourselves for our choices.
My advice to first time buyers is to: 1) lower your expectations, 2)buy now if you can, because waiting out the market is probably going to be futile, and 3) buy what you can afford and don't compare yourself to the people living in bigger/nicer houses, that purchased while the market was still affordable. Those days of being able to afford those types of homes are long gone, for the vast majority of American families, and we must accept our new housing reality/crisis.
My husband and I will be staying put in our cozy, affordable, "starter home", and will be grateful for it!
Good luck to any of you trying to buy now, or in the future!