Contributed by: Angela Palacios, CFP®, AIF®
Real Estate Boom: The Perfect Storm
For many investors our home is one of our biggest assets. Over the past year, we have been stuck inside of our biggest asset nearly 24/7. You’ve heard the saying “Distance makes the heart grow fonder.” This seems to apply to our home for many of us. Over the past year, companies like Home Depot or Lowes have seen success because we nowhere to spend money except on home projects. Others have spent so much time at home they have outgrown it or find they want different things from their home. This has resulted in one of the hottest home real estate markets since 2005. A recent Zillow survey shows 1 in 10 Americans have moved in the past year! I saw the first open house in mid-April in my own neighborhood and there was a steady line of people going in and out of the house all afternoon, cars were lined up down the street!
Buyers are competing against each other in a frenzy putting offers on homes 10% or more above asking prices and eliminating contingencies, offering free rent etc. Doing anything they can to have their offer move to the top of a sellers list. Home prices are up 15% in the last year alone and houses are only staying on the market for a few days.
Low interest rates are another catalyst, yet again. According to bankrate.com, 30 year mortgage rates are well below 3% as of April 13th, 2021. This is lower than they have ever been making homes more affordable (at least until prices were driven up). Also, don’t discount the stimulus money potential home buyers may have been banking!
Lastly, and probably one of the biggest behind the scenes driver of this housing market, is the fact that home building never recovered after the 2008 financial crisis.
According to the Census Bureau 991,000 single-family homes began construction in 2020. This is the 9th year in a row that the number has increased. However, when you consider back in 2005 the all-time US record for new home starts was 1.72 Million we are still far off the pace set over a decade ago!
As one of our largest generations, millennials, are starting families they are exploding onto the scene ready to buy homes. After 2008, the home building industry hasn’t been able to build these cheaper entry level homes as the price of inputs has gone up so there is very short supply.
So what can a home buyer do for an edge today?
Get preapproved for a mortgage – an offer that is contingent upon this will likely fall to the bottom of the list
Have your down payment ready PLUS! – if you really want a home you may need to come up with additional money to put down if the bank doesn’t appraise the home you want for the price you have to pay
Don’t forget the home inspection – but your bidding competitors might forego this to make their offer look better so consider bringing a general contractor or someone knowledgeable in home repair projects you know with you to look at the house
Act quickly – reach out first thing in the morning for an appointment if you see a home listed for sale
Know someone in your desired neighborhood? Ask them to post on the neighborhood Facebook page to see if anyone is selling soon.
Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.