Getting a home inspection before closing will save you more money now than ever before
The American housing market has seen unprecedented price increases over the last couple of years. In 2021, housing prices were up a staggering 18.8%. Even as the Federal Reserve continues to raise interest rates (making home payments more expensive, and housing less affordable), housing prices in the country are expected to continue their upward trajectory and rise 5.9% between March 2022 and March 2023.
What does this mean for you as an aspiring homeowner? It indicates that the cost of everything from buying property to maintenance and repairs is expected to increase by a sizable amount. This makes it all the more important to schedule a home inspection before you commit to such a significant investment.
A home inspection is essentially your insurance against the high amount of money you’re expected to spend on a house. Finding out about any major issues with the house’s foundation, and plumbing and HVAC systems, can save you the cost of large-scale maintenance and repairs in the future. This information also gives you leverage for negotiating with sellers so you can purchase the house at a better price.
Why are housing prices rising?
The current spike in US housing prices is the highest seen in the 21st century. There are several regulatory as well as cultural factors at play that have contributed to this increase. Here are some of them.
1. Rising interest rates
A primary reason for increasing housing prices is rising interest rates, implemented by the Federal Reserve to raise costs and slow down the economy. The mortgage rates throughout the pandemic remained at near all-time lows (2.68% for a 30-year fixed rate mortgage in December 2020) as the government tried to stimulate buying. Then, faced with a possible inflation crisis, the Federal Reserve raised rates to more than 5%-- the highest mortgage rate since the 1980s. Now that economic conditions are steadily improving, interest rates are slowly falling, but still remain above 4.5%.
What does this mean for you? Simply put, retail banks will now have to pay higher interest rates on the money they borrow from the Federal Reserve. In turn, they will pass on the rate hike to you. This means that you will have to pay more interest on any home loans you take on. This is expected to contribute to a general downturn in demand in the national housing market that could last a few years, as would-be buyers decide to wait for better rates.
2. Increased demand in tech hubs
The 21st century has witnessed a tech explosion that may have been further accelerated by the pandemic, with tech giants like Apple, Google, and Facebook recording some of their highest quarterly revenue figures in AY 2020-2021.
The rise in newly prosperous tech workers looking for housing in cities like San Francisco, Seattle, and Austin has led to a need for innovative housing solutions in these tech hubs. However, these cities and many more are simply not built to support the sky-rocketing demand for housing that they are experiencing.
Despite valiant efforts by local authorities (like a historic move by Minneapolis and now California to end the ‘single-family zoning’ law), aspiring homeowners are finding it extremely difficult to buy a place to live in these cities. If you are looking to buy a house in or around one of these tech hubs, you can expect to pay significantly more than a few years ago.
3. Rising property taxes
The recent increase in property taxes is another major reason for the steep rise in housing prices. Like federal interest rates, property taxes (or taxes in general, for that matter) were hiked by the government this year to recoup the fiscal losses caused by the pandemic.
Property taxes make up a sizable portion of a house’s market value (anywhere between 1-2%). This means that any increase in property taxes directly affects housing prices in those regions. In 2021, Americans paid a staggering $328 billion in property taxes, a number that is expected to increase well into the second half of this year.
4. Growing supply-demand disparity
At the core of the current housing crisis lies an ever-growing supply-demand gap. The large-scale disruption in construction activities caused by the pandemic is to blame for lower housing supply. Labor shortages, raw material supply-chain bottlenecks, and working restrictions led to the construction of fewer houses in the last two years. As of April 2022, approximately 1.3 million homes in the U.S were up for sale - an 11% year-on-year decrease from 2021.
At the same time, cheaper mortgages (as a result of the Federal Reserve lowering lending rates to stimulate spending) and growing demand for housing in major industrial centers and tech hubs led to a massive increase in consumer demand. Around 59% percent of all homes on the market in 2022 sold above list price, compared to 2021, when 49% of homes sold above list price.
The growth in demand for housing is expected to continue rising even at the peak of the current market recession, which will only widen the supply-demand gap and make it more expensive for people to buy houses.
Outlook for the housing market
As CNBC explains, housing affordability is determined by three primary factors: household income, cost of financing (mortgages), and the average price of a house in the country. As the national economy recovers from the disruption caused by the pandemic, a steady rise has been recorded in all three of these metrics.
However, the problem is that the factors that make housing more expensive - mortgage rates and average house price - have been rising exponentially compared to the factors that would keep housing affordable, such as increased household income and higher supply of housing units. This disparity between fundamental metrics has been driving the current housing recession in the US. While several fiscal and administrative measures have been put in place to control the recession, housing prices are expected to rise further, at least in the foreseeable future.
This makes it all the more important for buyers to conduct exhaustive market research to make sure they’re investing in the right house. This includes analyzing prices thoroughly, consulting multiple mortgage brokers before picking one, and most importantly, getting a comprehensive home inspection before buying a house.
How does getting an inspection save you money?
A home inspection helps you ensure that the house you’re about to buy is worth the price you're paying for it. An inspection can also bring important structural and operational flaws to light before they become complex problems that require expensive repairs and maintenance.
With Inspectify, you can schedule a home inspection at the click of a button. Our extensive, nation-wide network of qualified property inspectors helps you get inspections scheduled at the earliest (usually within a week), no matter the location of your property. With many inspection types to choose from, buyers are able to be sure their potential new home is termite, mold and hazard-free while being aware of any deficiencies or needed repairs before moving in. Moreover, our inspection report is prepared in a clear, standardized format that is easy to understand. The repair cost estimates and other insights you can draw from the data in the report can then be used to negotiate with sellers and hopefully get a reduction on your buying price.
With Inspectify, you can get all of your home inspection needs taken care of on one comprehensive, easy-to-use platform. Schedule an inspection today to potentially save thousands on your home purchase and repairs.