What does the real estate market have in store? Karen Carr Brady, CFP®, weighs in on how Grownups can navigate homebuying decisions this year.

Are you thinking of buying a home soon or in the near future? This big of a financial decision requires a lot of preparation, due diligence, and a whole lot of soul searching.

While you’re busy with all of that, don’t forget to pay attention to the larger real estate trends happening all around us. While they shouldn’t drive your decision, they can be an important piece of your home buying puzzle. Time.com recently reported that all potential home buyers and sellers should be aware of one significant industry trend in 2017: “extreme housing market fragmentation.”

This may sound like some fancy term that’s only used at conferences for real estate brokers across America, but it’s actually pretty simple: Smaller homes and condos near city centers are in demand, while larger suburban homes are less desirable. This shift in tastes and preferences means buyers will have very different experiences with the homebuying process, depending on which segment of the market they are in.

Moody’s Analytics predicts that home prices nationally will “keep rising, albeit more slowly—3.5 percent in 2017 vs. 4.5 percent in 2016.” But here’s the problem with averages: They smooth out the more nuanced story of housing market fragmentation.

Urban properties are experiencing much more price appreciation than suburban homes. So just because the national average looks good, the particular type of property you’re looking for may underperform or overshoot the national average based on its size, location, and other factors. For example, “over the five years between 2011 and 2016, the average price on a two-bedroom house climbed 59 percent nationwide, while four-bedroom houses rose a more modest 41 percent, according to an analysis by Attom Data Solutions.

Should Trends Affect our Decisions?

When it comes to major life choices like whether to be a homeowner or renter, it’s important to make a decision that’s right for you regardless of the trends. You wouldn’t plan a trip to the most popular new ski resort if you hate to ski. So why would you buy a house just because it’s the “right” time according to a few articles on the internet?

It’s tempting to buy before the interest rates on mortgages start to creep up or before home prices rise, but we need to keep things in perspective. For instance, if you’re buying a home for $200,000, the cost of waiting another year could be a 3.5 percent price increase (the national average for 2017).

That shakes out to an extra $7,000. Of course, that’s a lot of money on its own. But on the other hand, it pales in comparison to the hundreds of thousands of dollars you’re committing to your total home purchase!

It’s important to be aware of the extra expense, but don’t lose sight of the bigger picture. In most cases, that extra cost won’t derail your dreams of home ownership—it will just require a little extra planning. Perhaps you’ll need to save more or go with a slightly smaller property. Just like Rome, your financial foundation wasn’t built in a day. And it won’t be undone by one real estate trend—if you don’t let it.

What if I’m on Trend…and Not in a Good Way?

If you’re scouting out downtown condos or starter homes near a city center, you’re definitely not alone. We’ve covered why trends shouldn’t dictate our financial decisions, but what if you’ve made the decision to buy and you find out you’re a little too trendy for your own good?

You’ll need to consider the tradeoffs of buying in the current environment. Given your budget, a slightly higher purchase price might mean less money for dinners out or that annual vacation you love to take. You’ll ultimately have to decide if these things are worth scaling back on to make your home purchase work, without overextending yourself. Only you can determine what feels comfortable to you (and your partner or family).

Once you know the trends, you’ll be able to recognize that inventory will be tight and competition will be high when shopping for the kind of properties that interest you. If you know that going in, you can decide to be a bit more flexible than you might have been if the trends were reversed. Looking for two bathrooms? Maybe one and a half will have to do. Not interested in a fixer-upper that requires a lot of renovation? Perhaps a few home improvement projects wouldn’t be so bad.

What if I Want to Buck the Trend?

If you find yourself on the other side of this trend and want to purchase a larger or more suburban home, it could just be your lucky year! You may want to use this great timing as motivation to get more prepared and closer to your homebuying goal. You could up your monthly savings or get serious about finding the right real estate agent—whatever your next step is.

Urban buyers will likely need to be more flexible when it comes to their home search, but as a suburban buyer, you will likely have the luxury of housing inventory. Create a list of must-haves, nice-to-haves, and deal breakers and share it with your real estate agent. No house is ever going to fit your wish list perfectly, but hopefully, the current real estate environment means you can get pretty close.

Trends Aside, I Want to Buy a House Someday! What Should I be Doing?

No one decides to buy a house overnight (at least I hope not)! If you’re serious about making your homebuying dreams a reality, start by taking a few steps well before you head to your first open house:

  • Kick your saving into high gear. No matter what kind of home you decide to purchase, one thing is constant—you’ll need some cash up front to cover your down payment, closing costs, moving costs, and then some. If you want to take the leap into homeownership, make saving a major priority. Define a few specific areas of your budget where you can cut back or even cut out altogether. Take that savings amount and deposit it directly into a savings account earmarked for your new home.
  • Check your credit score and explore ways to improve it. You can find your credit score and details about what’s driving it for free at CreditKarma.com. You can boost your score by paying down the balance on your credit cards, automating your bills to ensure you won’t be making any late payments, and avoid opening any new credit accounts (if you can).
  • Start “window shopping” and define your home budget. Use sites like Zillow and Trulia to get a feel for how much things cost. When you find a few properties you like, use a mortgage calculator to determine what your monthly payments would be if you purchased that place. Sound doable? If not, take a look at a few more properties in a lower price range. Use this process to help you define a price point that feels comfortable.
  • Live like you’ve already moved in. You’ve crunched the numbers with the mortgage calculator and have an idea of how much your ideal property would cost you each month (remember this is more than just the mortgage payment—factor in taxes, insurance, PMI, and maintenance). The price point you set might sound reasonable in theory but actually put it to the test. If the monthly housing cost is higher than your current rent, aim to save the difference each month so you can get comfortable with the tradeoffs that might come along with spending more on housing. If you are consistently dipping into your house savings fund, you may need to tweak your price point again.
  • Think about how your lifestyle may change. Buying a home usually comes with a lot more changes than just paying a mortgage each month instead of rent. You may find yourself trading weekly brunch dates for home improvement projects or staycations over trips away.

Your Values Will Always Trump Trends

Trends make for interesting headlines, but your values should always define your decisions. If owning your own home is important to you, it’s time to start preparing to make that happen. Trends come and go. Urban centers and suburbs fall in and out of fashion. But as long as you’re paying attention to what matters most to you and what fits your lifestyle, trends won’t seem to matter much anymore.

Karen Carr Brady is the founder of Simplie, a financial planning company that offers virtual appointments with CERTIFIED FINANCIAL PLANNER™ professionals. Karen is a former member of the Society of Grownups planning team and is now based in New York City. When she’s not writing about personal finance or meeting with clients, you can find her roaming around NYC looking for the best place to eat.

Any third-party resources or websites referenced above are not under Society of Grownups control. Society of Grownups cannot guarantee and are not responsible for the accuracy of the resources, websites, or any products or services available through such resources or websites.

While Society of Grownups hopes the information is useful, it’s only intended to provide general education. It’s not legal, tax, or investment advice, and may not apply or be useful to your specific financial situation. If you need recommendations geared to your personal financial situation, schedule time with a financial planner.

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