Mortgage rates are rising as are house prices. What can you do? What should you do?
Real estate has never worked like other purchases. You can’t just go to a store and pick out a place to live. Even new construction only works that way when housing markets have cooled off.
In a hot or even a neutral market, purchasing a home takes a bit of luck and a sound plan. During the current, incredibly hot sellers’ market, in many parts of the country finding a home becomes even more difficult.
It’s not uncommon for a new listing to go under contract over the listing price the same day they get listed. That’s a huge challenge for people looking to make what’s usually the largest purchase of their life. You can’t wait to look at new listings and sometimes have to make a decision (and an offer) without actually seeing the home.
Even then, if you make an offer at, or even over, asking without seeing the property, you may still lose out. It’s a frustrating process, but there are ways to at least somewhat stack the odds in your favor.
Image source: St. Louis Fed.
Now Is (Almost Always) the Best Time to Buy
When you look at the chart above which shows the average sales price of homes in the United States, you see a line that goes steadily up. Yes, there are some dips, they’re generally short-lived and not predictable.
If, for example, you thought that prices were too high in the fourth-quarter of 2017, when they averaged $399,700 per home, you did see averages drop until they began climbing again in 2020. The problem is that there are many other multi-year spans where prices just went up steadily.
That’s a phenomenon that was well-described by Nicole Rueth, mortgage broker and senior vice president of Fairway Independent Mortgage Corp. in Colorado, to TheStreet’s Veronika Bondarenko.
“Real estate may not go up every single year but it always goes up,” she said.
So, you can wait for a dip, but that’s a risky strategy and ultimately one that may hurt you or not really matter as in the long run, in a broad sense, now is pretty much always the best time to buy.
How Do You Buy a House in a Seller’s Market?
Everything starts with having the right Realtor. My wife and I have used the same mother/daughter real estate team since buying our first Florida property (a small vacation condo) about six years ago. That duo helped us buy our first condo to live in West Palm Beach, helped us sell that condo, as well as the first one, and found us our current rental to live in.
When we sold our home to move to a bigger rental, out Realtors (who had become dear friends) helped us buy a Disney World-area resort property that we both use and rent out. That market was so hot that you needed to be a cash buyer (we were with the proceeds of selling our home) and you needed to be aggressive.
We researched which resorts and communities we liked (by staying at a number of them) while our Realtors researched pricing. And, then, when condos came on the market, we had our offer already prepared so our Realtors can get it in nearly as soon as a property became available.
Bidding cash for a condo you have never seen felt a bit scary, but we trusted our Realtors who made sure we had the option to back out if the inspection turned up any real problems. We eventually purchased a two-bedroom resort property in a resort we loved and we followed almost the exact same script when it came to buying a new home to actually live in.
During that process, however, we learned a number of things that can help anyone in a search for a home:
Open up your geography: We started our search in West Palm Beach and learned very quickly that we simply did not want to spend the type of money it would require for the home we wanted. In order to find a house that met our requirements, we eventually decided to look about 45 minutes north in Port St. Lucie. It’s an up-and-coming area that has many of the things we wanted, which we expect will continue to grow very quickly.Look for problems: Many people want move-in-ready homes or to only do limited work, The home we ended up buying need a full cosmetic renovation and it had a tenant living there (who gets 90 days to vacate). The tenant made showing the home difficult (it was not in any way clean or well-maintained) so we were able to buy it with a quick, over-asking, sight-unseen offer.Know the market: The home we purchased was listed at $30,000 less than a similar property we had lost out on, which was less than it was worth based on comparable sales in the market. We came in at $20,000 over asking and closed the deal for $10,000 less than the other property would have cost us (likely because the tenant getting to stay for three months scared off rivals who needed to move quickly.Line up your finances: There’s a difference between a mortgage pre-qualification letter generated by a website and one from an actual mortgage company representative that went over your finances. When we made our offer, the seller’s agent called our mortgage company where the person we had worked with assured the seller we were well-qualified for a quick closing.
It’s a challenge to buy a house in the current market, but it’s possible. You just need to be prepared, move quickly, and be open to making some compromises.
