It’s not uncommon to view several homes, make a few offers, and counter counteroffers. It takes some time to find a great house. In a hot housing market, however, finding any property at all can feel impossible.
A hot housing market is when there’s high demand but little inventory. It’s a seller’s market, and competition amongst buyers is fierce. For buyers, it can be an incredibly frustrating time. No matter what you do, you can’t seem to have any success.
Experts predict the market may remain hot for a while. They also expect to see prices continue to rise. Demand remains high and supply low. There’s anticipation for new home constructions, but the timeline is unclear due to ongoing supply chain issues and labor shortages.
If you’re thinking about buying a home any time soon, these predictions can be disheartening. It doesn’t mean you need to put off house-hunting, though. With a few smart moves, you can increase your chances of success.
What Causes a Hot Housing Market?
In the world of real estate, a hot housing market refers to a seller’s market. That’s when there aren’t enough homes for sale to meet buyer demand. There are a few reasons this might happen:
- Homeowners don’t want to sell. They may want to maintain their investment and continue building equity as home values increase, or they may just like where they live.
- Construction is slow. Building houses is time-consuming. In addition to the actual process of building, it takes time to get permits. Additional issues, such as supply chain problems, increased cost of lumber, and labor shortages, slow the process even more.
- Interest rates are low. Lower rates can attract more people to the idea of getting a mortgage. During the pandemic, rates have declined to historic lows.
- A local job market experiences growth. More people moving to a given area can trigger an increase in demand for homes.
Problems for Buyers During a Housing Boom
For sellers, a housing boom can be a positive thing. They can typically sell quickly and net higher selling prices. For buyers, however, it can be problematic.
It can feel almost impossible to find a suitable house in a hot housing market. As soon as one goes up for sale, it’s gone. When you do view properties and make offers, there’s competition. You’re up against several other buyers in the same position. If a house gets multiple offers, there’s a lower chance a seller will accept yours (even if it’s an otherwise great offer). If you need to move within a specific timeframe, it could lead you to settle, taking a home that you don’t like or that doesn’t meet your needs.
6 Smart Moves to Make During a Hot Housing Market
While it might not feel that way at times, it is possible to buy a home in a hot housing market. Here are a few things you can do to make the process a little easier:
1. Do Your Homework
Before you start looking seriously into buying a home, do some research. Check out listings in your potential new locale and see how long they’re sitting before they’re under contract. In a hot housing market, that won’t be very long.
It’s also a good idea to look at recently sold houses. That can give you a better idea of what sale prices actually are rather than looking at list prices only.
2. Find a Good Agent
Hiring a real estate agent is almost always a good idea. In a hot housing market, however, one that’s knowledgeable and experienced can be an invaluable asset. You’ll want an agent who knows the area well. They should also be able to alert you to new listings as soon as they’re available, if not sooner, so you’re less likely to miss out.
3. Be More Flexible
While you certainly shouldn’t have to settle, trying to buy a home during a housing boom may mean that you have to compromise a little. You might need to expand your potential location or be willing to accept certain features instead of the ones you really wanted. Know what you need in your new home and where you can have more flexibility.
4. Convert Equity in Your Current Home
If you’re looking to buy a home with financing, you’ll generally want to get pre-approved. Getting your financing lined up beforehand shows you’re serious, and it can help expedite the selling process.
Even with pre-approval, there’s no guarantee a seller will choose your offer. A seller might not want to take the risk that your financing could fall through, especially if they’re looking to sell quickly. A substantial down payment could help turn the tide in your favor, but a cash offer may prove most effective.
If you own your current home and have built up some equity, consider ways to convert it into the cash you need. While you could take out a home equity loan, a sale-leaseback offers a more favorable solution for those with less than ideal credit scores or who don’t want the risk and hassle of loans. With a sale-leaseback option, you sell your home first, but you don’t have to move. Instead, you can remain in the home as a renter while you search for and secure your next home. You no longer have to worry about an existing mortgage and can get cash from the sale to put towards a higher downpayment on your next home. Once you’re ready, you can sell the home on the open market.
5. Make More Competitive Offer
An attractive, competitive offer is crucial. Paying entirely in cash can be particularly attractive for sellers, as it avoids the stress of the financing contingency. Excluding any other contingencies may work in your favor, too, as can adding an escalation clause.
One thing you won’t want to exclude is the inspection. However, you can sweeten the deal by keeping it simple. Consider a standard inspection and let the seller know that you’ll still buy even if the inspector finds minor issues. Or, you can set a threshold and say you’ll only ask the seller to perform any repairs over that amount.
6. Have Patience
Finally, you’ll need to be patient. You don’t want to jump on a house without researching it. Nor do you want to make excessive bids on an available property out of desperation. While you might be frustrated, patience will help you avoid making a decision you regret.
Find a Home in a Hot Housing Market
Trying to buy a home in a hot housing market can be frustrating. It’s not impossible, though. Stay focused on what you can control. Maintain contact with your realtor and know what goes into making a reasonable yet competitive offer. Using a sale-leaseback to convert your equity to use for a larger down payment or cash offer can also give you an edge. You can eliminate your current mortgage, avoiding contingencies, and giving you an advantage on your next purchase. When the right house eventually comes along, a sale-leaseback can help put you in the right spot to win out against the competition.
If a sale-leaseback sounds like the solution for you, contact an expert to learn more.
In an ideal world, you’d be able to find your perfect home quickly and have your offer accepted with little to no questions asked. Unfortunately, that’s not always how it happens. If you are still unsure of options to capitalization, consult a financial advisor to discuss your options.