Nolo's Essential Guide to Buying Your First Home by Ilona Bray, Alayna Schroeder, Marcia Stewart Page A
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local open houses, do you have to wait in line just to squeeze up the stairs, or do you find yourself all alone with a chatty seller’s agent? When talking with friends about homebuying, do they tell stories of how being outbid on houses drove them to couples’ counseling, or how they’re plotting how to get a bargain from a seller whose house has languished on the market for weeks? These are just a few of the more extreme indicators of whether the local housing market is hot or cold.
A hot market means there are more buyers than sellers, or not enough houses on the market to satisfy demand. As soon as a house is listed for sale, it’s snapped up, and sellers can be inflexible about the price and buyers’ other negotiating requests. In the hottest markets, sellers may pit you against other buyers competing to offer the highest price, the shortest closing period, and the smoothest transaction.
A cold market means there are more sellers than buyers, and houses may remain on the market for months at a time, waiting for a buyer. If, as happened in 2008, this is coupled with a major economic downturn, foreclosures can flood the market and bring down prices. This gives the buyer leverage when negotiating, because the longer a seller has waited, the more desperate he or she may be to unload the place. Meanwhile, sellers know that you have other options.
TIP
Markets can be lukewarm or mixed, too. As Realtor® Mark Nash notes, “Hot and cold is a generalization. For example, in some markets, starter single-family homes could be hot, and penthouse condos could be cold.”
The urgency of your house search, and your approach to sellers, will all be shaped by knowing whether you’re in a market that’s hot, cold, transitional, or balanced in the middle. It’s not hard to figure out the basic “hot or cold?” question. The more difficult part is to gauge where the market is going—a market can move up or down in a matter of weeks. It can be affected by the local and national economy, mortgage interest rates, the availability and cost of housing (including rentals), the supply of and demand for homes, and more. Scads of real estate commentators make their living trying to predict what’s next, but none know for sure. Nor do they specialize in the corner of the world you’re looking at, which might have its own mini hot and cold regions.
You’ll develop a sense of where your local market is going once you start seriously househunting. If, after several weeks, you find yourself able to predict the asking prices of newly offered homes, the market is probably pretty stable. If, on the other hand, you notice open house or “price reduced” signs on houses you looked at a few weeks ago, the market is probably plateauing or cooling. A real estate agent can also tell you about cooling trends, based on an increasing number of listings in their MLS database and a longer average time that houses stay on the market. And if you’ve been outbid on a house or two and notice that the list prices of similar houses seem to be inching out of your range, the market is heating up and you’ll need to act quickly.
TIP
Don’t put your life on hold trying to predict the future. For every person who waited for the market to drop further and got a good price, there’s another one who watched it pass them by. Just find a house you want at a price that’s fair and affordable at the time. If you’re planning to stay there for more than a few years, you’ll weather any downturns.
Waiting for the downturn that never came. Eva, an artist, says, “At one point, I thought I’d never marry and decided to buy my own house. I began looking, accompanied by my dad, who’d offered to pitch in on the down payment. But every time I found a place I liked, my dad said, ‘That’s way too much, prices will come down soon.’ He said that first about houses in the $200,000 range. Then I watched as similar houses started
A hot market means there are more buyers than sellers, or not enough houses on the market to satisfy demand. As soon as a house is listed for sale, it’s snapped up, and sellers can be inflexible about the price and buyers’ other negotiating requests. In the hottest markets, sellers may pit you against other buyers competing to offer the highest price, the shortest closing period, and the smoothest transaction.
A cold market means there are more sellers than buyers, and houses may remain on the market for months at a time, waiting for a buyer. If, as happened in 2008, this is coupled with a major economic downturn, foreclosures can flood the market and bring down prices. This gives the buyer leverage when negotiating, because the longer a seller has waited, the more desperate he or she may be to unload the place. Meanwhile, sellers know that you have other options.
TIP
Markets can be lukewarm or mixed, too. As Realtor® Mark Nash notes, “Hot and cold is a generalization. For example, in some markets, starter single-family homes could be hot, and penthouse condos could be cold.”
The urgency of your house search, and your approach to sellers, will all be shaped by knowing whether you’re in a market that’s hot, cold, transitional, or balanced in the middle. It’s not hard to figure out the basic “hot or cold?” question. The more difficult part is to gauge where the market is going—a market can move up or down in a matter of weeks. It can be affected by the local and national economy, mortgage interest rates, the availability and cost of housing (including rentals), the supply of and demand for homes, and more. Scads of real estate commentators make their living trying to predict what’s next, but none know for sure. Nor do they specialize in the corner of the world you’re looking at, which might have its own mini hot and cold regions.
You’ll develop a sense of where your local market is going once you start seriously househunting. If, after several weeks, you find yourself able to predict the asking prices of newly offered homes, the market is probably pretty stable. If, on the other hand, you notice open house or “price reduced” signs on houses you looked at a few weeks ago, the market is probably plateauing or cooling. A real estate agent can also tell you about cooling trends, based on an increasing number of listings in their MLS database and a longer average time that houses stay on the market. And if you’ve been outbid on a house or two and notice that the list prices of similar houses seem to be inching out of your range, the market is heating up and you’ll need to act quickly.
TIP
Don’t put your life on hold trying to predict the future. For every person who waited for the market to drop further and got a good price, there’s another one who watched it pass them by. Just find a house you want at a price that’s fair and affordable at the time. If you’re planning to stay there for more than a few years, you’ll weather any downturns.
Waiting for the downturn that never came. Eva, an artist, says, “At one point, I thought I’d never marry and decided to buy my own house. I began looking, accompanied by my dad, who’d offered to pitch in on the down payment. But every time I found a place I liked, my dad said, ‘That’s way too much, prices will come down soon.’ He said that first about houses in the $200,000 range. Then I watched as similar houses started
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