Today’s market produces a variety of winners
Real estate, like all free markets, is built on the principle of supply and demand. When there is a demand from oversized buyers and virtually no supply of homes for sale – like right now – things are bound to get a little intense.
And that particular intensity turns tons of people into winners.
Here’s how this market is making a difference for different groups:
• Sellers. The biggest winners in this market are sellers of almost any variety. Large capital gains have created big nuggets for homeowners and tons of people are cashing in – or taking advantage of this opportunity to downsize.
The sellers are also getting much better terms than usual, and they are using them to their advantage. We’re seeing longer-than-usual shutdowns as sellers take the time to shop for their next home, more cash offers, and less pressure to adjust contracts based on appraisals and inspections.
How do sellers screw this up? Waiting for a ‘top’ is a big mistake. This market will not last forever, and when it does, the opportunity for multiple offers and good terms will have passed.
• Investors. Housing prices are high, but so are rents, which makes cash investments (think apartment buildings, duplexes, and building communities for rent) really appealing. Interest rates are low. Money is cheap. Investors looking for strong returns over time find plenty of opportunities.
Short-term rental and vacation owners are also doing very well at the moment. There is a real opportunity for one-time investors to buy something that they plan to use on their own in the future and have it paid for on its own by then.
How do investors screw this up? It’s a tough time being a pinball machine. These investors earn their money when they buy, not when they sell; they have no profit left if they have to buy at full retail price. Savvy buyers look to the long term rather than cashing in on a bird in hand.
• Existing owners. Many economists believe that we are approaching a new standard for house prices, and this new standard is going to be much higher than our prices now. This makes the outlook very optimistic for those who already own a home.
Now is a great time to refinance loans with monthly mortgage insurance or to convert equity into major upgrades like new roofs and kitchens.
How do existing owners mess this up? The classic mistake homeowners make is using their home equity for short-term gains, like new cars and vacations. Those who keep their eyes on building long-term wealth will be heartily rewarded for years to come.
• Buyers. It’s an interesting quirk of this market that buyers and sellers can be winners – but that’s exactly what’s happening. Buyers who can look past a frustrating buying process where list prices are treated as opening bids and sellers have all the leverage are still facing future appreciation. They also get deadly interest rates which make the monthly cost of ownership much lower than the cost of renting.
The market will stabilize at some point, but there is no bubble to burst here. The key to success is to enter this market NOW before the opportunity is lost.
How do buyers screw this up? Buyers should be very careful not to give too much away during a negotiation. Patience is, by far, the best practice for a buyer. Buyers should expect to compete to win bids; While losing a particular home – and sometimes multiple homes – can be frustrating, the big picture matters more.
Buyers should ALWAYS insist on being able to inspect a home and trust the opinions of a professional real estate agent to guide them through financing, appraisals and negotiations.
Alex Krumm is the president of the Sarasota and Manatee Real Estate Association.