Make no bones about it: Housing is ridiculously expensive.
Rising home and rent costs, over-inflated prices, slim pickings, and undesirable locations leave many of us disgruntled and disheartened. Consumers and builders thought the housing market would dramatically change (or at least see a big bump) in the Trump administration and it hasn’t played out like that yet, according to experts in the field.
“The important question here is whether the optimism we saw after (the 2016) election has manifested itself into the housing market this year,” according to Ralph McLaughlin, chief economist at Trulia. “We aren’t seeing signs that’s the case.”
Builders thought upon Trump’s arrival there would be some bigtime deregulation. That hasn’t happened. Instead, people in the building industry found themselves fighting Trump’s tax plan that cut deductions for homeownership.
Trump’s anti-immigration stance has only “hurt the construction labor shortage which is largely fueled by Mexican workers.” Workers are going underground because they don’t want to be deported. It just makes housing more expensive in the long run.
As for the basics, according to CNBC:
- Home prices rose nationwide by 6.9 percent from April 2017 to April 2018.
- About 52 percent of the nation’s largest housing markets were considered overvalued this past April. A market is considered overvalued when prices are at least 10 percent higher than the long term sustainable level.
- High demand and low supply drive up home prices.
- Adding more homes to the markets helps make prices more affordable.
A scorching hot housing market leaves some people feeling burned … unless you’re a seller. Sellers are raking it in. If you are this person, you have potential to make some serious cash. But buyers don’t have to be left out in the cold. You can still get a sweet pad.
So, who’s coming out on top in the deal? Hopefully both buyers and sellers can all come out on top. Here are a few tips on how to purchase in a hot housing market and still buy a home you can afford without getting into a bidding war.
Resist the Temptation to Avoid an Inspection
If you’re a cash buyer, you may be tempted to forgo an inspection and appraisal because it’s more appealing to the seller or you worry that you’ll get into a bidding war with other buyers unless you make some sacrifices. You’re concerned that you won’t get the home of your dreams as a result. But don’t do it.
An inspection can reveal all sorts of problems that you could never have spotted with an untrained eye. Think how bad it would be to find out later that the foundation of your home had a crack in it and part of the house was sinking into the earth — a nightmare.
“An expert will look behind the walls, on the roof, test electric, termite damage, among many other issues,” says House Heroes President Lucas Machado. “That re-done basement and attic — did the buyer get permits? If you don’t uncover these issues during inspection, you could either lose your escrow deposit, be saddled with huge repairs, or get hit with city fines.”
In the U.S. home sellers are often responsible for providing a warranty that the home is in good working order. Interestingly enough, the practice of obtaining a warranty isn’t necessarily customary in other markets around the globe, even in countries as close as Canada. In the US, a warranty usually lasts at least a year and requires the seller to pay for any repairs or upgrades required if the home isn’t in good working condition.
If anything, shorten the inspection window to appeal to the seller, but don’t do away with it altogether.
Be sure to get an appraisal too, unless you don’t care that you’re paying more for the house than what it’s worth. Some buyers offer more than asking price thinking that will seal the deal, but that’s not always the case. What’s more is that the buyer will sometimes throw in a request that the seller pay closing costs because they are offering more than the house is worth. This can easily turn off the seller as a condition because they figure that if they can pay more for the house, they should also be prepared to pay for closing. It could be a deal breaker.
Expand Your Search Area and Buy What You Can Actually Afford
You may not want to live in the suburbs, but oftentimes you can afford a brand new home for cheaper than you can get in the hip city. On a national level, a house in a city is about $7,000 more a year than a home in a suburb. What’s crazy is in cities like New York City, you may be pay that same amount every month. The reverse can be true, however. Sometimes it’s cheaper to live in the city than it is to live in outlying areas. You have to know the market.
“You may be stuck in a market where home ownership will always feel a little out of reach,” money management expert Dave Ramsey. “But if you’re open to moving, relocating can fast-track your home-buying dream. Young professionals are embracing this new reality.”
As a side note, some home sellers in the suburbs have found themselves in a pickle because they want more for their slightly used homes than what brand new construction a few doors down is going for. When you add a bunch of new inventory to the neighborhood, house prices tend to drop.
If you want to live in a desirable location, you may have to downgrade your grand visions. A one-bedroom, one-bath home will obviously cost a lot less than something you really want. If your budget can realistically handle the small home, it may be the way to go. You could always sell it down the road and be able to afford something a little nicer if you can turn a profit. It will give you time to save your pennies.
Real Estate Agent or No?
Savvy sellers may be able to do it themselves, bypassing the real estate agent as the middleman. If you have a home that sells for $359,000, a 6 percent commission would be $21,540 that would go to the broker and agents instead of in your pocket.
Some would argue that buying directly from an owner is just as easy as it is if you used an agent. You would have to know what you’re doing though and work through the logistics with the help of experts who’ve done it before.
If you like control, then selling it yourself may be the way to go. You are responsible for the entire transaction; you get to decide when it’s shown; how long it stays on the market; and you know the house better than anyone else. It’s up to you if you think it’s worth it to hire an agent or if you think you can do better going at it alone.
If you’re worried about a volatile housing market, it may be best to rent until things shake out — or until the market crashes. It’s always tough to know when to buy and when to sell. First-time home buyers need not despair. And sellers: Don’t scare off buyers by being greedy.
What are your thoughts on how the Trump administration — or the Republican party — has impacted the housing market thus far? Any policy changes could take up to two years to manifest. Uncertainty definitely looms.