The housing market is white-hot right now! Home prices are way up over last year, and 50% of homes are selling for more than the asking price—$20,000, $50,000, even $100,000 more in some cases. [1] That’s causing buyers everywhere to do some insane things to get the houses they want. More than half made an offer last year without seeing the house in person. [2] Many are even willing to skip a home inspection if it will get their offer accepted. In case you’re wondering, both are really bad ideas.
There’s nothing mysterious about a hot housing market. It’s what happens when you have more buyers than homes to buy. Demand is high, but the supply is low, and that drives up prices. I’ve heard a lot of people say we’re actually in a housing bubble. That’s when demand causes home prices to jump so high, so fast, that buyers can’t keep up. Homes stop selling, flooding the market and causing prices to drop like a rock. But I don’t think that’s what’s going on.
We have a housing shortage, fueled by a shortage in building supplies—another thing to thank COVID-19 for. With fewer new homes to choose from, buyers are looking at used homes, but not many people are selling right now. Plus, a lot of the buyers are moving to areas with a much lower cost of living, so they have the cash to make these wild offers on the homes that are available. That’s the perfect combination for the feeding frenzy we’re seeing now. And even though I think the frenzy will slow and prices will stabilize, I don’t think home prices will drop significantly any time soon.
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What Does A Hot Housing Market Mean for Sellers?
This is great news for sellers! With more motivated buyers than sellers, competition is fierce, and sellers have the advantage. You can sit back, let the offers roll in, and pick the best one. But you shouldn’t make the leap to sell until you’re sure you’re financially and emotionally ready. If you are, the next step is to find a reputable agent and talk over your situation:
- Are you selling and buying? Sell your home before you buy. You’ll likely be able to sell your home before you find a new one, but you never want risk being stuck paying two mortgages.
- Use your advantage in your favor. In a hot housing market, buyers will be more likely to accept your terms. Take advantage of it!
- A multiple-offer game plan is a must. Get on the same page with your agent on price, types of financing, and contingencies you’ll accept, so it’s easy to pick the best offer.
- Higher price point homes aren’t moving quite as fast. Houses valued at $500,000 and up may take a little longer to sell, so don’t get discouraged if it takes a few more showings to get offers.
What Does a Hot Housing Market Mean for Buyers?
It may be a seller’s market right now. But buyers aren’t completely out of luck. One thing’s for sure: Buyers need a seasoned real estate pro on their side. Between crazy offers and fewer homes to choose from, this is no time for amateur hour.
Here’s some advice for winning in a seller’s market:
- Stick to your budget. Don’t let emotion or a time crunch cause you to make bad money decisions. House fever causes 20% of first-time home buyers to go over budget. [3] This is a bad idea.
- Know what it takes to have a competitive offer. If you’re buying with a mortgage, get preapproved—not just prequalified—for a conventional loan. I always recommend a 15-year, fixed-rate loan, where the monthly payments are no more than 25% of your take-home pay.
- Make a cash offer if you can. Cash is king, and it’ll set you apart from other buyers in a good way!
- Know when to walk away. Before you blow your budget or settle for a home you don’t really want, stop and let things cool off a bit. Waiting a few months may feel like an eternity, but it can be just enough time to let a hot housing market settle down.
- Be prepared for a longer search. This is especially true if you’re a first-time home buyer.
Most real estate pros agree this seller’s market is here to stay for a while. While home prices have exploded nationwide, every market is different, so be prepared for just about anything. Regardless, play it smart. A new home should be a blessing, not a burden—both emotionally and financially!
Photo by Harmen Jelle van Mourik