Real estate, like all free markets, is built on the principle of supply and demand. When there’s off-the-charts buyer demand and virtually no supply of homes to sell – like right now – things are bound to get a little intense.
And this particular intensity is turning tons of people into winners.
Here’s how this market is turning things up for different groups:
• Sellers. The biggest winners in this market are sellers of almost every variety. Major equity gains have created fat nest eggs for owners and tons of people are cashing out – or taking this opportunity to downsize.
Sellers are also getting much better terms than usual, and they’re using these to their advantage. We’re seeing longer closing periods than usual while sellers take 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 won’t last forever, and when it turns, the opportunity for multiple offers and great terms will have passed.
• Investors. Home prices are high, but so are rents – which makes cash-flow investments (think apartment buildings, duplexes, and build-to-rent communities) really attractive. Interest rates are low. Money is cheap. Investors looking for solid returns over time are finding many opportunities.
Owners of short-term and vacation rentals are also doing quite well at the moment. There’s a real opportunity for one-off investors to buy something they plan to use themselves in the future and have it pay for itself until then.
How do investors screw this up? It’s a hard time to be a flipper. These investors make their money when they buy, not when they sell; there’s no profit left if they have to buy at full retail price. Wise buyers are looking to the long-term rather than cashing in with a bird in hand.
• Existing homeowners. Many economists think we’re approaching a new normal for real estate prices, and that new normal is going to be a lot higher than our prices are right now. That makes the outlook very rosy for those who already own homes.
This is a great time to refinance out of loans that carry monthly mortgage insurance or to convert equity into major improvements like new roofs and kitchens.
How do existing homeowners screw this up? The classic mistake homeowners make is to use the equity in their homes 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 both buyers and sellers can be winners – but that’s exactly what’s happening. Buyers who can look past a frustrating purchase process where list prices are treated like opening bids and sellers hold all the leverage are still getting in front of future appreciation. They’re also getting killer interest rates that make…