Pro’s & Con’s of a High Real Estate Market

Without a doubt, we are currently experiencing a “high” real estate market. A high market represents that housing values are up and/ or expected to increase. Now, most people see that as a positive, which it can be. The economy is rising, homes will continue to appreciate, and everything is great and dandy! Although a high market may be a good thing for your local real estate agents, closing attorneys and mortgage brokers, is it the best thing for you, a hardworking citizen, looking to buy their first home?

I’m here to give you both sides to the story and a little insight to how good and bad our current real estate market is.

First, let’s talk about mortgage rates and being approved for a loan.

PRO:  Low-Interest Rates 

According to Forbes.com and Bankrate, we hit record lows for mortgage interest rates in 2016 with an average 30-year loan holding an interest rate below 4%.  As expected, after the election of Donald Trump interest rates rose to above 4% for the first time in 2 years. Now, mid-2017 we see an average interest rate of 4.12%  compared to a 3.37% rates we saw in July 2016. Now don’t get me wrong, 4% is still a low rate, therefore still making it a good time to buy in the eyes of many people.

CON: Higher Home Values

In response to low-interest rates, there is a higher demand for inventory.  If there is a high demand and a low supply, this makes the values skyrocket. This is true for any market you look at, not just real estate. If home values are rising then you may not be able to afford your dream home, which may have been in your budget 5 years ago. Ultimately, I’m saying you may end up paying way more than a home is truly worth strictly because the way the market is when your choosing to buy. The real estate market fluctuates so dramatically and quickly that it is essentially impossible for inflation to keep up.

Speaking of inventory;

PRO: Influx of Inventory 

Now I am not saying that there is a lot of inventory on the market right now because there simply is not. I am saying that there is a higher turnover rate for real estate inventory. Considering the high demand for homes that all these newly approved buyers are looking for; builders, developers, and sellers are all in a great spot. Properties sell quickly and for a higher price.  Properties don’t stay on the market for long, so if you’re looking to buy and your dream home is gone in a day, don’t worry, chances are another couple dream homes will become available soon, just don’t wait too long to act.

CON: More Competition 

Because inventory is short, competition on the “good” homes is extremely high. By “good” home I mean a newly renovated, entry level, suburban home. This is what the majority of people are buying. Everybody wants that 3 bed 2 bath acre lot on the corner of a cul-de-sac road and they will go to great lengths to get it. People are emotional when buying a home and sometimes nothing will get in the way of them getting that house. Not $50,000 above asking price, not a home inspection, nothing. People are bidding up homes by offering way above asking price and winning bid wars by waving their home inspections. Yes, this is really happening. My advice: don’t conform to this behavior.

Now let’s talk about what a seller’s market is.

PRO: Selling your home 

As you may be able to conclude by now, selling your house right now will be worth it financially. Your home is probably worth more now than it will be in the near future and more than has been in the past. By selling now, given the property is in good condition, (if it is not in good condition and you want to sell click here to see how I can help you) you will most likely be making money on your investment. They say “sell high buy low” right? Well, you will surely be able to sell high but….. well that brings us to the next section.

CON: Buying a new home 

Unfortunately, if you plan on selling and buying in the same market, you will not be able to buy low. You will be selling high and then wrapping all that equity you earned on the sale into another overpriced property. My advice: don’t do this. Sell your property, liquidate your asset, save that cash, and rent until the market goes back down. That way you can truly “sell high and buy low.” To answer the argument of “renting is a waste of money” – yes you may be paying rent to someone else’s mortgage but I personally would rather do that then pay a mortgage on an overpriced property for 30 years and also you can save yourself a few years of mowing the lawn, caring for the pool, and shoveling snow.

Next, I want to talk about real estate professionals and receiving genuine help with real estate. 

PRO: Real estate help is VERY easy to find 

When the real estate market is high, everybody likes to get involved. This is wonderful because everywhere you turn, you can find a real estate agent, mortgage broker, etc. Everybody knows somebody in real estate and they will be more than happy to refer you to them!

CON: Real estate professionals are more eager to make a sale

Disclaimer: this is not a personal characterization of anybody but simply a general observation. As there are more real estate professionals, there is more competition within the field. This makes real estate professionals more eager to make a sale or land a client. Make sure you are interviewing your real estate professionals and are sure that they are in it for your best interest and not because they have to close this deal to make their rent payment. This is also true for any industry. There’s a lot of greed out there these days so look for genuine souls to work with.

Please reach out with any questions, comments, concerns regarding any information in the article or any real estate topic in general.

“When making a decision of minor [or major] improtance, I have always found it advantageous to consider all the pros and cons.” – Sigmund Freud

 

 

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