July 1, 2021
Buying a house in a hot housing market takes planning, strategy, and persistence. It's very similar to snagging the best deals on Black Friday. You have to know what you want, come prepared, have your money ready, and get to the checkout ASAP. One of the most helpful things for homebuyers is understanding the market and what's made it so competitive.
At the beginning of 2020, before the pandemic, many homeowners were considering selling in the upcoming spring. But with the lockdowns and looming economic uncertainties, they changed their minds. Add to that the thousands of city dwellers moving to the suburbs and smaller towns. The current red hot 2021 real estate market is a result of many things — the foremost being low inventory and rock-bottom interest rates. The strong demand and low inventory translate to a seller's market, median price increases, and bidding wars. Read on to see our best tips for buying in today's market.
Why is the housing market so hot?
Besides the low interest rates and inventory shortage, the current hot market is a result of several other things, including:
- Homebuilders aren't able to keep up with the demand. Contractors are dealing with delays because of the pandemic, the continued shortage of skilled construction workers, skyrocketing material costs, restrictive zoning, expensive permits, and limited land.
- There's a moratorium on foreclosures because of the pandemic. Many homes that would have been foreclosed on and sold over the last year are protected and in forbearance. According to Attom Data Solutions, foreclosures are down 77% from 2020.
- Homeowners that were going to sell have decided not to. Instead, they've chosen to renovate and add on to their homes. The entire housing market is tight — including rentals — because of the moratorium on evictions. Current homeowners are worried they won't find a home to rent or buy if they sell theirs.
- Millennials are getting married, having kids, and entering the already crowded real estate market. With a tight rental market, in many areas, it's less expensive to own than rent. Additionally, with home equity building faster, owning has even more advantages over renting.
- Plus, rather than having to stay in big cities for work, employees can operate remotely. That in itself has changed the rules as many big-city dwellers are opting for small towns in states like Idaho, Oregon, Arizona, South Dakota, South Carolina, Washington, and Florida.
According to the National Association of Realtors, February 2021 sales were 9.1% higher than last year. Yet, the housing inventory was down by almost 30%. Those numbers alone are a good illustration of why so many homes receive multiple offers within 24 hours on the market.
The interesting point, too, is that it's just not certain cities and states that homes are selling like hotcakes. Some of the hottest markets with the stiffest competition include:
- Sacramento, CA
- Vallejo, CA
- Seattle, WA
- Boise, ID
- Phoenix, AZ
- Charlotte, NC
- Denver, CO
- Tampa, FL
The good news is that if you're flexible with where you can live — there are still areas that aren't so competitive. And no matter where you are home shopping, it's essential to keep your head and remember the real estate is an investment. Nobody wants to overpay for a property. Today in 2021, it's more important than ever to understand the market, know your budget, and have the counsel of an honest real estate agent.
How to Find a House in a Hot Market
Just like looking for the best Black Friday deals, you have to be strategic. According to Zillow economist Matthew Speakman, there was less than a three-month supply of homes on the market in January. It hasn't been that low since the early 2000s. That means you may need to be inventive when it comes to finding a house. Here are some unique ways to find homes for sale:
- Look at properties that other shoppers avoid. For example, maybe the décor or floorplan is dated, or it's a cosmetic fixer. As long as it's in a good location, it might be something to consider.
- Take a look at homes that have been on the market for a very long time. Find out why the house hasn't sold. It might not have anything to do with the property. Maybe the buyer's financing fell through. It's always worth getting more information.
- Ask your real estate agent to review expired listings and old listings for sale by the owner. Comb through the for sale by owner (FSBO) on Zillow, ForSaleByOwner, and Trulia yourself.
- Investigate areas you haven't looked at before. For example, if you needed to be close to your job, but now you work remotely — your options could be unlimited. Take some road trips and check out new areas.
- Consider other types of properties besides single-family homes. See if townhomes, duplexes, triplexes, fourplexes, or condominiums could fit your needs. Many types of mortgages finance not only single-unit properties but also up to four units. You could live in one unit and rent out the other ones.
- Approach landlords in the area you'd like to live in. You never know. They may be interested in selling their rental.
- Write letters to homeowners in the neighborhood you'd like to live in. See if they'd consider selling. Although this can be time-consuming, it may uncover a home to buy without the crazy competition driving the price up in a bidding war.
- Check online listings several times a day and see listings as soon as they're posted. Vary your search perimeters, increase your price, look at different property types, expand your search area. All it takes is for a home to fall out of escrow to be available again. Be vigilant.
When buying in this type of heated market, it's essential to be realistic. You may need to submit dozens of offers before one is accepted. Understanding the challenges going in can help you from getting discouraged.
Have Solid Financing
Now that you have a better idea of why the market is so hot, you can understand why it's crucial to have your financing in order. Gone are the days when shoppers could submit an offer without a solid pre-qualification letter from a reputable lender. When there are cash buyers, you have to be able to compete with solid financing.
- Work with a lender that's willing to go the extra mile to make sure you qualify. And supply them with any documentation they need quickly. For example, have your latest W2 handy, 30 days of paystubs, bank statements, and if you're self-employed, both your personal and business tax returns.
- When you put in an offer, make it more appealing to the seller by being flexible with the closing date. The seller may want to close quickly, or they may prefer a more extended escrow. Being flexible with the closing date may cinch the deal.
- Don't be surprised if you need to offer above the asking price. That's where working with an experienced realtor helps. Give your best offer and include a good size earnest money deposit.
- Present a clean offer with no extras. In a tight market, don't expect the seller to be very motivated to do many repairs. Although it's always good to get a home inspection, consider most items that need repairing will be your responsibility. That is unless there's a problem with the roof or significant dry rot. In those instances, most lenders will require repairs before they lend on the property.
- If you're a first-time homebuyer, take the time to educate yourself, so you understand the home loan process and know what's expected of you. Once your offer is accepted, things move fast, so it's good to be prepared.
Get the Best Realtor
Besides getting your financing in place and understanding the market, having an honest and experienced realtor is paramount. You'll need a guide who can tell you if a property is a good deal or overpriced. Look at homes for sale and see what real estate offices have the most listings. Consider one of their agents. A busy office will have more connections and knowledge of upcoming homes for sale.
It's also important to interview more than one realtor. Ask them how they're dealing with the inventory shortage. Use a realtor that specializes in the area you want to buy in.
When talking to agents, know your priorities as far as housing needs. That way, you'll know where you can compromise. When you interview several agents, you may find one that does a better job locating homes and closing deals for buyers like you.
Choose an agent with excellent negotiating skills and one who is willing to sell you as the perfect buyer. And when you put in an offer on a home, send a letter or video to the sellers introducing yourself and your family. Tell them what you love about their home and any other data you feel would present you in the best light.
Buying a home in a competitive market has its challenges, but it can be done. Keep these tips in mind, and good luck in finding your dream home!