How to buy a house in today’s heated market
If you’ve been reading headlines, you may have heard about how ‘hot’ the current housing market is. And if you’ve been out there trying to buy a home, you definitely know how challenging it is to be a buyer right now. Like other financial markets, the housing market can have up and down cycles, but if you bought a home in the past and are thinking about diving in again, a word of fair warning: this market isn’t the same as it was the last time you purchased a home.
But never fear! We’re here to break down why and how things are different right now, as well as what you need to know to be a successful buyer in today’s heated climate.
The root(s) of the problem
The current problem is based in the foundational relationship in economics: supply and demand. The current inventory of homes for sale is the lowest since 1982, and this historically low inventory is colliding with red-hot demand as a huge influx of millennials approach homebuying age. Add into the mix some historically low interest rates and pent-up post-quarantine demands for more space and you have the current market: way too many buyers for way too few homes.
And because prices respond to these supply and demand forces, the current low supply woes are making the few homes on the market more and more expensive. Listing prices are rising at double-digit rates in 64% of metro areas, and 56% of buyers are facing bidding wars in their offers, according to a Redfin survey in January. The homes available are also going faster and faster, with more than half of homes are now going under contract in less than two weeks.
Pre-approval is essential
So what’s a buyer to do? You can start by doing everything you can to prepare yourself for success. As we’ve explored before in our pre-purchase checklist, at the top of your list should be getting pre-approved from a quality lender like Guaranteed Rate Affinity. Having a pre-approval letter from a qualified lender can help your offer stand out by showing sellers that you’ve already been pre-approved and are in a financial position to actually afford their home.
Explore a fully underwritten pre-approval
With multi-offer bidding wars a common occurrence, buyers want to be able to present their strongest possible offer. One way Guaranteed Rate Affinity can help protect buyers from those sharp multi-offer elbows is through Red Arrow Approval Express, which delivers a full underwrite of credit, income and assets.* After completing the more extensive pre-approval process, buyers are able to make an offer that stands out and apart from other financing offers and compete with potential cash buyers.
Getting comfortable with multiple offer situations
There are other valuable strategies to think about when facing the prospect of multiple-offer situation and the aforementioned ‘bidding war.’ We explore more on the topic in other posts, but the first thing you can do is to increase your offer price. It’s important to note you should only do so after consulting with your Loan Officer about how upping your offer will impact your monthly payment, as well as consulting with your real estate agent to make sure you’re not overpaying for a house.
Another strategy is to be flexible with your dates in your offer. Some sellers want to close quickly while others are in no rush, so try to have your real estate agent find out what time frames work best for the seller, then adjust your offer to their needs.
Peek into off-market properties
One way to reduce the risk of a bidding war is to put in offers on home with less buyers. But how do you get away from the crowd? One option might be to go off-market. Also known as quiet or ‘pocket’ listings, off-market listings are homes that may be for sale but aren’t listed on the MLS.
In a market as competitive as the current one, buyers can benefit from the reduced eyes an off-market listing will receive. If you’re trying to buy into a particularly attractive neighborhood try reaching out to agents who service that area to see if they have an exclusive listings at the moment you could view. Off-market properties can also be found on other non-MLS resources like local For Sale By Owner (FSBO) pages, the classified sections of your local newspapers, or even Craigslist.
Give the process time
Finally, it’s important to distinguish between the things you can control and those you can’t. You can’t control what other buyers are going to do (or how much they’re going to offer over the asking price), but you can control your own search and your frame of mind. Be willing to ask lots of questions, learn from your experiences and explore different strategies with your loan officer and real estate agent. The right house is out there—it just might takes some time to find it.
*Appraisal required for eligibility and subject to conditions.