Most buyers will blow budget for dream home: Survey
With interest rates and housing inventory both at all-time lows, the majority of consumers would overshoot their budgets for the right home, according to a survey by LendingTree.
Amid fierce competition, 64% of prospective homebuyers said they'd spend more than planned if they found the perfect house, the survey found. A quarter of respondents said they'd stick to budget and the remaining 11% weren't sure.
Spiking sales and demand continue to drive values. The median sales price hit an all-time high of $316,375 during the four weeks ending Aug. 16 — an annual rise of 11% and the largest jump in over six years, according to Redfin.
While breaking the bank for something exceptional — especially as buyers face difficult conditions — doesn't seem too unreasonable, it could be financially short-sighted and possibly lead to future mortgage distress.
"I urge homebuyers to be very cautious about going over budget. Many people underestimate the maintenance costs of owning a home," Tendayi Kapfidze, chief economist at LendingTree, said in the report. "If you are stretched financially and underinvest in maintenance, it can diminish the value of your home."
One of the biggest lessons of the housing crisis was making sure consumers don't stretch themselves too thin. In an interview from December 2018, Freedom Mortgage CEO Stan Middleman said, "The best mortgage is no mortgage." He pointed out the strongest buyers make purchases they can afford, not what they might be able to afford.
Finding a home within budget currently looms as the largest stressor for consumers, with 37% of potential buyers choosing that as the worst part of the process. Finding a home in their search range because of low supply was the most stressful for 17% and 16% said trying to sell their current home.
Additionally, a 10% share worried most about applying for a mortgage. However, that breaks down to 9% of white buyers compared to 16% of Black and 18% Hispanic buyers — percentages that fall in line with mortgage denial rates by race.