Miro Fitkova
February 2024

The Risks of Buying a House at the Top of the Market

There is perhaps nothing scarier in personal finance than buying a house you ultimately regret.

When you’re in a seller’s market, which is currently the case in many parts of the country, you can be at more risk of buying something you regret, or that isn’t a good financial decision.

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Right now, while it’s not true everywhere, in the hotter markets across the country, there is a massive amount of competition between homebuyers. Buyers are scooping up properties as soon as they hit the market, and there are often multiple offers on properties and bidding wars.

That creates a frenzied sense of desperation, which can lead people to make bad homebuying decisions.

In a healthy real estate market, there is usually around six months of unsold inventory, and that means it would take six months for all the houses on the market to sell at the current rate. Right now, unsold inventory nationwide is less than half of that and even lower in the hottest markets.

That doesn’t mean there aren’t times when it’s okay to buy at the top of the market. You just have to be mindful of what you’re doing, and don’t let yourself get caught up in the emotions of anything.

When you understand the risks and honestly assess your personal financial situation, the market, and each property you look at, you can lower the risks of buying a house at the top of the market.

With that in mind, what are those risks?

The Potential of Overpaying

The biggest risk of buying at the top of the market is that you’re going to overpay. Home prices have gone up double-digit percentages year-over-year in the past couple of years due to various factors, including record-low mortgage rates and a shift in lifestyles due to the pandemic.

If you buy a home at an inflated price stemming from high demand and low supply, your home could be needlessly expensive. You might have a hard time selling the home if the value falls in the future. You could be in a situation where you owe more than it’s currently worth.

While that’s a very real fear, there’s no way to know for sure if we’re in an actual bubble, and if so, no one knows when it will burst. Rising prices aren’t a reason in and of themselves not to buy a home, but you need to make sure you’re in a financially comfortable position with a reliable income and a healthy emergency fund.

Think About Your Future Plans

If you’re buying a long-term home, and it’s one you plan to live in for the foreseeable future, your perspective is going to be different than if you’re buying a home to live in for a shorter time. If you think you might only live in a home for a few years, buying at the top of the market can be a big financial risk.

If you’re buying your forever home, you’re looking primarily for a place to live rather than an investment. You do have to weigh out your goals and plans, and they’re going to vary for every buyer, and what’s right for you at any given time isn’t going to be right for every other buyer.

What is Your Financial Situation?

Finally, before buying a house at the top of the market or otherwise, you have to think about your financial situation. We touched on this a bit above.

Is there a risk that your job and income could be affected if there were a recession? If so, you might want to rethink buying in a hot market. Do you have an emergency fund if something were to happen? How big is that emergency fund?

People often think that it’s inherently a bad time to buy a home just because the market is hot, and the reality is that it can just as easily be a bad time to buy when the market is down, depending on what’s happening in your own life.

No one can tell you whether it’s an optimal time to buy a home without considering your finances and plans for that home.

Miro Fitkova
E-mail: [email protected]
Fitkova Realty Group

Servicing The Greater Boston Area

Equal Housing Opportunity