The housing market can feel like a confusing mess to anyone, especially a new investor. Why is the market hot right now? Will it cool off soon? Should you hold out for the perfect property or compromise? You’ve come to the perfect place. We have answers for all those questions, and more, in our guide to navigating the housing market as an investor.
Hot and Cold Markets
“Hot” and “cold” housing markets may be completely unfamiliar to you, so we’ll start with some simple definitions. A cold housing market is one where there are more sellers than buyers. In other words, supply is high, and demand is low. This usually works out well for buyers—since sellers are excited to even receive an offer, they may be tempted to sell for less than they were thinking.
On the other hand, a hot housing market has more buyers than sellers, creating the perfect opportunity for sellers to raise prices and pocket significant money. Investors may tremble at the idea of buying a house for more than they want to, but remember—you’ll be able to sell or rent the house out for more, too.
Why Is the Market Hot Now?
The housing market has enjoyed blazing-hotness for a few years now, and there’s a simple explanation: COVID-19. We know you’re wondering, “Why did a pandemic make people want to buy more houses?” To answer that, we need to look at the effects of the pandemic.
If you’re a woodworker, you may have noticed lumber prices rise significantly over the last two years. That’s because there’s a massive lumber shortage reducing the amount of wood. Less wood means more expensive wood, which means fewer houses were built in 2020 and 2021. This drastically reduces the ability to build a home, so a pre-owned home is all but required.
People Leaving Cities
Unfortunately for buyers, more people are interested in purchasing homes right now. COVID-19 has naturally scared many people out of metro areas like New York City and Los Angeles, so many apartment-dwellers are now on the hunt for houses.
Low Interest Rates
Finally, interest rates dropped in early March of 2020, making it more appealing to purchase a house. The government’s thinking was to motivate more people to make big purchases when the economy slowed, but all these factors created a market where several buyers really want a house from a single seller.
What This Means for Sellers
In a hot market, the seller has the power. They’ll likely receive several offers, and they’ll only care about the best one. People trying to score a deal right now are sorely out of luck since a seller could receive upwards of 20 offers on their home. If you’re an investor with a house to flip, you’re in luck. You can probably raise your asking price or charge more for rent!
However, you should know that highly-priced homes don’t move as fast as those that cost $350,000 or less. A hot market should still lead to you selling the house at some point, but it could take a little longer than you’re expecting.
What This Means for Buyers
Good news! You aren’t doomed to a massively unfavorable deal just because it’s a hot market. You’ll need to stay smart (and maybe pass on a few lovely houses) to come away with a bargain, but all hope is not lost.
Your first move is to learn what you need to do to make a “competitive offer.” This may mean working with an agent—they’re a professional for a reason. That competitive offer should be a cash one if you’ve saved for it. Cash is far more appealing to a seller than anything else, so this difference can make a slightly lower offer look a lot sweeter.
Next, remember that you made a budget for a reason. It’s all too easy to get swept up in a gorgeous house, but don’t feel obligated to up your offer out of emotion. You shouldn’t need to make concession after concession to secure a home—if you feel yourself going down that road, it’s probably time to find a different option.
Finally, you should mentally prepare for a long house hunt. We completely understand the desire to snag a house quickly and start on your path to making back the investment, but expecting too much too soon is a surefire way to lose money on the deal. That said, if you want a house now, there are several Stone Mountain investment properties for sale.
Surf the Pavement and the Web
Before settling in on your target, take a walk around your desired area and search up the neighborhood on Zillow and other home-sale sites. Get a sense of the available options and the various price points.
Another key point to look out for is how long homes are listed before the contract is marked as “pending.” This will give you an idea of the time frame in which you must act to make a bid the seller will see.
Finally, look at recently sold listings in the area. Keep an eye out for the final price compared to the listing price—this is great for getting a sense of how close to the listing price your bid should be to have an offer considered.
When Is the Market Slowing Down?
After learning all the work you’ll need to invest to get a great deal, you may be thinking, “I’ll just wait until this market slows down again.” You may want to reconsider that strategy. Experts all seem to agree that the hot streak the market is on isn’t going anywhere—at least not soon. Inflation is constantly pushing the cost to buy a house, and interest rates are set to stay low until at least 2023.
Now that you’ve read our guide to navigating the housing market as an investor, get ready to take the market by storm! Even though things are hot, you can turn a massive profit if you play your cards right.