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Don't 'expect 20% price gains' on homes anymore, warns economist: 'Those days are over'

"People should have the right expectations."

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In September, the median sales price of a home was $352,800, more than 13% higher than it was last year, according to data from the National Association of Realtors. Some states saw even more dramatic prices spikes. Home prices in Idaho and Arizona, for example, were up 32.2% and 29.5%, respectively, from August 2020 to August 2021, according to a CoreLogic report.

Soaring real estate prices have buyers worried that if home prices dip, they won't be able to recoup what they spent should they sell their house in the future.

Still, many experts agree that a home is a good long-term investment, as long as you know what you're signing up for. "People should have the right expectations," says Lawrence Yun, chief economist with the National Association of Realtors. "They should not expect the 20% price gain of recent times. Those days are over."

If you're considering buying a home, here's what to know about how your house might appreciate and whether now is a good time for you to buy.

'Big gains are over'

As regards the domestic real-estate market, "big gains are over," Yun says. In other words, if you buy a home now, don't expect the value to shoot up by next year. The rise in prices during the last 18 months has been fueled by the pandemic. Remote workers looking to upgrade their spaces elevated demand and made it a seller's market. As workers return to the office and the vaccine rollout continues, though, demand for homes will start to fall.

That doesn't necessarily mean your home will not gain, or even lose, value. If you "can stay within budget and buy a home, then you could gain that 5%" in appreciation in a year, says Yun.

Though prices rise and fall, homes often end up appreciating value in the long term, says Daryl Fairweather, chief economist at Redfin. "Even if the housing market does happen to slow down, in the long run, home prices will go up," she says. "In the last housing crash, home prices did recover. If you're going to be staying in the home for a long time, it's always a good time to invest in an asset, and a home is a good way to do that."

Whether buying is smart depends on an 'individual's financial circumstance'

If you're going to live in your home for a long time, it's most likely a good investment, says Mark La Spisa, a certified financial planner and president of Vermillion Financial. And "if you're going to be in it for 30 years, it doesn't matter" how housing prices fluctuate in the short term, he says.

However, whether or not it's smart for you to buy depends on factors that aren't related to the market, too. "Real estate is a local decision," La Spisa says. "It's based on local economics." For example, homes in Arkansas are up 13.6% compared to last year, according to Zillow. While that's still a jump, it's not as drastic as states like Idaho and Arizona.

[If you] can stay within budget and buy a home, then you could gain that 5%.
Lawrence Yun
chief economist with the National Association of Realtors

Buying is a "personal decision," says Nicole Bachaud, an economist at Zillow, and it should be based on your personal finances. "Buyers should make sure they are getting something they can afford, while still being able to cover unexpected expenses and reach other financial goals." Before investing in a home or anywhere else, for example, many experts would encourage you to build up an emergency fund.

Regardless of the heat of the real estate market, you need to decide for yourself, based on your finances, whether buying a home is a good idea for you, she says: "When you are ready to buy a house, financially and otherwise, and find something that meets your needs without paying too much, that might be the right time for you."

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