The housing market is like a long-running game: Sometimes buyers have the upper hand, and sometimes sellers are winning at every sale. So if you’re looking to buy a house in a market that favors sellers, are you out of luck, or is there something you can do to make sure you get a great home for your money?
The good news is that there’s a way to win this game even if you’re a buyer in a seller’s market. Brush up on these important considerations to be sure you end up with a good deal, high value and the home of your dreams.
If you’ve been researching real estate or looking for property in areas you’d love to call home, you’ve probably heard that the housing market is hot or that it’s a seller’s market. Here’s what you need to know about those terms and how to use them to your advantage when buying a home.
A seller’s market is a housing market that benefits sellers rather than buyers and often results in a cash offer, a bidding war and high competition all on a single property. This can happen in a variety of situations:
- Supply is low and demand is high
If you’re searching for a home in an area where not much building has taken place or most housing is already spoken for, the chances are high that you’ll have a strong seller’s market to contend with. When interested buyers are faced with low inventory, sellers have a commodity that everyone wants — a home — and they can list at a high asking price.
- An area suddenly becomes “the place to be”
If a city has low crime rates, a low cost of living, affordable mortgage rates, plentiful housing or a booming job market, it’s likely to become the next big thing. As people rush to make that city their home, the landscape will shift to every seller’s advantage, creating a seller’s market. This is especially true in areas that have just made any national “best place to live” list or are the new home of a big tech or entertainment company.
- A hot market just keeps getting hotter
Say the real estate market in a certain area started out hot and hasn’t reversed course — for example, if there’s no more room to build new homes. This is a case where a seller’s market just keeps getting more beneficial for anyone with real estate to list.
Lucky for buyers, nothing lasts forever — including the state of the housing market. Home prices move in a four-phase cycle, and once you know where your market is in the cycle, you can start tracking where house prices will go next.
Although this is the easiest spot to jump in, remember that home prices move in a cycle, meaning there’s no real “starting place.” Instead, this circle just keeps on spinning.
In the recovery phase, the housing market is starting to improve. It’s a buyer’s market because past events have resulted in high supply and low demand. Sellers don’t have a rare commodity, so they can’t list at high asking prices, and buyers have plenty of options.
As buyers see more plentiful real estate opportunities, they become more eager to spend their hard-earned cash. They buy property, and, noticing the change, sellers start listing their homes. In this phase, buyers and sellers are on equal footing as supply and demand remain roughly equal.
#3: Hyper supply
Once the housing market booms, more players realize they want a piece of the action. Builders start creating new neighborhoods to meet demand — but soon, the market is flooded.
In this phase, the average asking price drops, mortgage rates tend to go down and a buyer’s market returns — but even so, buyers aren’t particularly motivated. They just saw house prices plummet, so they’re a little hesitant to invest.
Now that you know the difference between a buyer’s market and a seller’s market — and how they move through four phases — it’s time for the big question: Should you wait for a market that benefits you?
The answer to this question depends on a variety of factors, including:
- How quickly you need to move
- How long you intend to stay in your new home
- Whether you can afford to pay an inflated asking price
- Whether your current home also sits in a seller’s market
If you need to move quickly or you can sell your current home for a high price, a seller’s market might not be bad news for you.
Housing markets in different areas play by different “rules.” For example, in an area where apartments are the norm, a single-family home with plenty of space will probably always be listed for a high asking price. However, in areas where single-family houses are plentiful, apartments close to the hustle and bustle of city life may be more expensive.
To determine the housing market conditions in your current area (where you’ll be a seller and therefore benefit from a seller’s market) or target area (where you’ll be a home buyer and hope for a buyer’s market), consider the following:
- The state of the local economy
- The state of the national economy
- The number of houses available for sale
- The number of houses being built
- The number of interested home buyers
- How housing prices have fluctuated over time
- Regional home standards or expectations
While this may be a simpler task in familiar areas, it can be tricky when you’re trying to understand the culture and expectations in a new city. Research your target area so you can get to know the housing market like a local.
Let’s say you’ve done all your research, you know exactly what kind of market you’re dealing with and it’s time to find that dream home. How can you know you’re getting a good deal, no matter what the housing market looks like?
Before you fall in love with any property, it’s wise to sit down and figure out exactly how much house you can afford, from interest rates to maintenance fees.
According to Forbes, one of the biggest things mortgage lenders consider is your debt-to-income ratio. That’s exactly what it sounds like: a measurement of how much money is going out the door versus how much is coming in. Lenders want to know that you can make your mortgage payments comfortably — so pay attention to this ratio when deciding on a budget.
It’s also smart to plan on paying a decent down payment. A higher down payment means a lower loan amount — and, if you hand over 20% or more of the purchase price as a down payment, you may not have to pay for loan insurance.
Finally, keep in mind that some sellers — especially in a seller’s market — will expect earnest money. This is “putting your money where your mouth is” and proving you’re serious about being a home buyer. Earnest money goes toward the down payment and closing costs if the deal goes through, and usually returns to you if the deal fails.
A home inspection for one house is usually affordable. However, in a competitive market, deals may fall through left and right, even after you’ve paid for an inspection — so keep an eye on this part of your budget. Inspecting lots of homes can get pretty pricey.
It’s possible to get a good deal, even in the worst market — but you have to know the unique challenges you’ll be facing. For example, if there’s a lot of competition in your target market, brainstorm ways to make your offer stand out — like having a mortgage preapproval letter in hand or paying a little more than the asking price.
When the market is hot and every home buyer is out hunting for that perfect property, you need to find creative ways to get ahead. Here are a few ways to find the best deals, even when there isn’t much real estate for sale.
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Want to know the best-kept secret for succeeding in a seller’s market? All you have to do is think — and house-hunt — outside the box.
Instead of trying to beat other buyers to the punch or stressing about inflated prices, try browsing Bungalo’s listings. You’ll find houses to fit your budget and your dreams — all without having to worry about making a bad investment.
Start searching today and become the savvy home buyer you were born to be.
This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.
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