Extreme Seller’s Markets: A Guide for Exhausted Home Buyers
The past two years or so have been rough - especially if you’re trying to buy a house and in particular if you’re trying to buy your first home. Terms like “seller’s market” that started getting thrown around in 2020 have been escalated to “extreme seller’s market” in 2021. Every month, there was another record broken for either high prices or low inventory with article after article talking about the broader economic impact often without really considering what it means for the average home buyer.
So if you’re one of the many tired home buyers out there, what do you do?
Meet Our Two Buyers: Patient Patrick and Flexible Fiona
Our clients Patrick and Fiona (names changed) both struggled to find homes despite their very different needs. Flexible Fiona had a maximum budget of $550K and a relatively short timeline of 30 days to find a home. She also had some pretty specific requirements that included a minimum of five acres, a first-floor main bedroom suite, and a generous additional first floor suite for her dogs with plenty of storage. Location was less important to her; she wanted something private in the country and was willing to look farther afield than many other buyers.
Patient Patrick, on the other hand, was in no rush to buy a home. He set his budget at $400K for a two to three bedroom brick home with a low-maintenance yard and an up-to-date kitchen. Location was much more important to him, but he was willing to compromise on things like proximity to the airport as long as the noise level stayed low. Most importantly, he was willing to wait until the right one came along.
Size, Timing, Location - Pick 2
Pre-pandemic, both our buyers might not have had such a hard time finding a home that matched their wishlist, but buying a home in an extreme seller’s market can mean making some compromises or being extremely patient - most likely a bit of both. In general, a buyer’s criteria can be summed up in seven parameters: location, size, layout, style, price, condition, and timing. Of course, we all want our home to check all of our boxes, but in a market like this, we often need to sort out what’s a desire and what’s a need.
For Fiona, getting into a home in her timeframe without having to do any major repairs outweighed everything else on her checklist. After touring over 35 homes, she found a beautiful house in her budget, but it lacked the suite for her dogs and the private country acreage she had envisioned. It might not have been her dream home, but she saw it as a valuable stepping stone on her journey to finding that. It fit many of her needs and with some easy rehabbing, she would be able to sell at a profit in just a couple of years. Plus, as she said, it had a great feel.
Patrick, in contrast, is still on the hunt. He’s less willing to compromise on his wishlist with the benefit of time on his side. In the five months we’ve been working with him he’s toured 45 homes and counting, and gone under contract twice. Both houses he had under contract were found to have $60,000 to $70,000 worth of necessary repairs during the inspection, putting them significantly out of his budget comfort zone. We helped him terminate both contracts and his search continues. As a savvy buyer, his right to an inspection period was one of the items on his checklist he wouldn’t compromise on.
Patricks’s experience with hidden repairs isn’t unique; it’s not unusual for a home to look great but have some major - and costly - hidden problems that only come to light when an experienced home inspector takes a look. Our go-to home inspector says he’s seen more homes with deal-breaker problems in the last six months than in the entire seven years he’s been in the industry. This, combined with buyers increasingly under pressure to waive their inspection period and other rights to win over sellers, is landing some less savvy buyers with major headaches.
The Cost-Benefit Ratio of Patience and Compromise
Patrick’s patience and diligence is saving him the headache of expensive repairs, but valuing patience above compromise does have its risks. Since his search started, interest rates have gone up and home prices have risen by $40-49K in the neighborhoods he’s committed to, further limiting his housing options. Patience may cost him more than compromise in the long run.
Several clients and friends have expressed concern that we might be in another housing bubble or are convinced they can wait until prices inevitably drop. While no one has a crystal ball, there’s a general consensus in the industry that we’re neither in a bubble nor are prices about to drop. The price growth we’re seeing is a result of demand and materials costs rather than risky practices like the ones that set off the 2008 recession.
That said, the housing market does seem to be “softening” heading into 2022, but that doesn’t mean home prices will plummet to pre-pandemic levels. We expect to see slower price growth and fewer bidding wars, but don’t anticipate prices falling - especially in a city like Nashville with six-figure job growth. Music City had been experiencing a rapid rise in home values well before the pandemic and will likely continue to see price growth as several tech companies to move to the region. If you’re planning to wait for homes to fall back into your price-range, you’re likely to be disappointed.
The Long and Short of It
If you’re a buyer like Patient Patrick who’s decided to wait with little compromise, or like Flexible Fiona with a time-table and a wishlist that might be difficult to fulfill in the current market, here’s our best advice:
Think of this house as a stepping stone: If your ultimate dream home is out of your budget or not currently on the market, building equity in a home that suits your current needs even if it doesn’t fulfill your wants is one of the best things you can do to set yourself up for future dream-house-hunting success.
Take a hard and honest look at your wishlist: Reevaluating some of your “must-haves” can broaden your options. Figure out what you can compromise on and readjust your search criteria accordingly.
Expand your search area: If your dream neighborhood is out of your budget, surrounding areas can give you access to the amenities you want without the price tag. There may be neighborhoods you hadn’t considered with a similar commute time but fewer amenities or similar amenities but a longer commute.
Increase your housing budget: This certainly isn’t an option for everyone or even most buyers, but if you do have wiggle-room now is a good time to take advantage of that. Many buyers who remember the 2008 housing bubble have been worried about overpaying for a home, but experts don’t believe we’re in bubble. While prices might soften slightly, it’s unlikely your new home will plummet in value.
Look at smaller homes: As the price per square foot rises, it’s worth considering if you can live in a smaller home that fits your budget and location.
Consider un-renovated houses: By “un-renovated,” we don’t mean something that needs major structural work or a new roof; rather, consider buying a home that could use some updating and cosmetic upgrades, which don’t have to happen all at once and can further increase the value of your investment when you do them. That 70’s shag carpeting might not spark joy, but it’s an easier and less expensive fix than you might imagine. Things like dated hardware, ugly paint, or old appliances are fairly easy to upgrade yourself and can be done over time.
Follow the 12:1 rule: On average, homebuyers put in one offer for every twelve houses they view. If you’re looking at dozens of homes but none of them inspire you to put in an offer, it’s time to sit down and look at what’s going wrong. Are your criteria too rigid or does your budget not reflect your wishlist? It’s time to weigh compromise against patience.
Your rights are the one thing you shouldn’t compromise on: There’s a lot of pressure on buyers to appeal to sellers through rent-backs, short closing periods, and more. Don’t let yourself get pressured into something you’re not comfortable with and never waive your right to an inspection.
Ready To Take On the Housing Market? We Can Help.
If you’re an exhausted house-hunter, we wish you luck, success, and patience. This is a wild time to be alive, let alone to be a home-buyer. Patience and compromise will be your second and third best allies during your house hunting journey. Your best ally is a good realtor. If you need help buying a home, reach out to Zelda Sheldon with Nashville Real Estate Rockstars at Benchmark Realty LLC.
Peace, Love, and Real Estate!