Why now is the right time to buy a home
Monday, November 1, 2021
If you were to ask any realtor “is right now a good time to buy a home” it’s safe to say that their answer would be a resounding “YES!”. While you might dismiss this prognostication as self-serving, with very few exceptions over the past 50+ years they’d be right more often than wrong. But 2021 feels different; we’re all exhausted from work stoppages and quarantines, upended by a musical-chairs-like migration from cities to suburbs, and many of us now live in “zoom towns”, areas that became more popular to live in as more people worked from home. But thanks to vaccines and (most of us) heeding health advisories, there is now light at the end of this long Covid tunnel. Interest rates are slowly rising, and home inventory is creeping up. Some folks I’ve talked to expect this crazy real estate market to turn downward and correct, as it did during the great recession of 2007-9. But if you’re one of the many buyers who have been waiting on the sidelines for this to occur before jumping into homeownership, you might be disappointed by the reality of what’s coming.
As long as new buyers continue to enter the market and there aren't enough homes to meet their needs, home prices will continue their steady upward rise, and these “sideliners” could soon sound like every baby boomer still grumbling about how they should have bought Microsoft stock back in the 1980’s. But how in the world can home values continue to go up after such historic price increases? Why are economists nearly unanimously calling for higher housing prices? Please, don’t make me talk about supply and demand. If we were at a bar or a cocktail party, you’d probably excuse yourself and go hide in the restroom rather than listen to Econ 101. So instead, let’s talk about millennials!
At the expense of sounding like I'm stereotyping, millennial professionals are generally tech-savvy, family-centric, achievement-oriented and college-educated. The largest segment of them, born between 1989 and 1993, are now hitting their thirties, that glorious age when first-time home buying pops into high gearand they begin their epic quest to "nest" in homes that are both school and family-friendly. This huge group of young Americans does not have buying-PTSD from either the 1989 or 2007 real estate crashes, their hearts are hungry for a home, and they’ve been largely priced out of the blossoming housing market. There are also, for better or worse, investors who have been buying single family homes with the intention of renting them as an investment, which takes away even more homes that otherwise could be purchased and lived-in long term.
You see what I did there? I tricked you into reading about “demand”. Now let’s talk about its naughty sibling, supply.
A LOT of people were hurt financially by the 2008 real estate crash. Builders, investors, first-time home buyers, and even the banks whose sloppy lending practices led us down that road in the first place. But one lasting outcome from 2008 was that homebuilders for the most part spent the last ten or so years playing it safe rather than aggressively building what the next demographic wave would need: more single-family homes and condos. As a result, the U.S. is now under-built by around 4 million homes, according to a recent report by Freddie Mac. While inventory is now on a slowly rising trajectory thanks partly to normalizing lumber prices and the construction of new sawmills, all the lumber in the world won’t fix the country’s supply problem. A very influential report by Goldman Sachs last month said that “of all the shortages afflicting the U.S. economy, the housing shortage might last the longest." That same report estimates that U.S. home prices will soar another 16% over the next 14 months, between November 2021 and December 2022, along with a 6% rise in 2023.
So until this supply and demand mismatch changes to favor buyers, how can anyone find a reasonably priced home in a seemingly impossible sellers market? It’s difficult, but not impossible: mostly it’s about being a little bit smarter than everyone else. You have to be both craftier and quicker than your competitors, those other buyers who could outbid you. Sometimes this just means finding and bidding strategically on homes when they first come to market, but enough people know this already that multiple offers within a listing’s first few days is still a common roadblock for buyers who are looking primarily at “move-in-ready" homes. So do we simply outbid everyone? Most experts now say that the probable outcome of overbidding in today’s November 2021 market is one in which the new owners will remain financially underwater for quite a while. While some people might not care about overpaying a little to get the home they want, anyone who might need to sell in five or fewer years shouldn’t be playing this game.
Which brings us to the best way to find a great property in an overheated market, but it’s not for the faint of heart, or the faint of joints for that matter. I’m talking about looking for cosmetically challenged or “distressed’ properties.
Just to be clear, I’m not referring to dilapidated buildings or homes infested with mold or insects. Homes like that are the purview of professional home builders, who generally possess the capital to not only to make all the necessary updates, but to absorb the occasional “oops” purchase. Most individual buyers don’t have these luxuries.
Learning how to purchase homes like this not only requires home updating expertise, it requires something that can’t be learned: the desire to do this kind of work. Most people lack the desire to fix up a house, and just as many people lack the knowledge. Both of these impediments can be overcome if you’re interested enough to take home renovation classes, online or off. But it may just be easier to seek out and find a realtor who can help distinguish between a nightmare on Elm Street and a potential gem on Main Street. Ask for, or look for, realtors who have home building or renovating experience; this is exactly the kind of experienced help you’ll need if you’re going to consider bidding on a property that needs a little “TLC”.
The other key to success with distressed properties is spending the time and resources to find and hire the very best home inspector you possibly can. Just as there are various levels of competency within realtors, home builders, and renovation contractors, the same holds true for home inspectors. Call a respected realtor in your area and ask them who they recommend, and interview each inspection company as if you’ll be hiring them to do the most important job you’ve ever had. Because when you are purchasing a home with issues, this professional could make or break you!
Here’s some final advice with regard to finding properties that require a little work. Look at a property’s history – when it was bought by current owners, what was paid, and how much prices have increase since then – to get a sense of what range of offers might be accepted. Once you find an agent you trust, don’t allow friends or family members who have “always wanted to work on a house” to weigh in and sway you one way or the other. The decision should be between you and your agent and your financial advisor. And don’t ever let someone convince you to remove the home inspection contingency from your offer. That is how you’ll protect your down payment, not to mention your sanity!
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