Andrew Wetzel's Musings

April 16, 2021

Is it a Better Time to Sell or to Buy Real Estate in Spring 2021?

As is usual, my best answer is it depends!  Can the answer be a “tie”?  I would like to think that when Real Estate is sold that both people “won” but Real Estate is a competitive process where two people have opposite if not adversarial motives.  No buyer ever said I want to give the seller as much money as possible unless, of course, they know there is competition or they intend to use their successful offer as leverage to negotiate something to their benefit later such as inspection results.  No seller ever said they wanted to give a buyer the lowest price unless they wanted to dump the property or intended to make no repairs.  Most sales happen between those extremes.  Getting to settlement is another matter.

The market today, Spring 2021, is as competitive as I have ever seen and I have been doing this since 1996.  The years from 2003 through 2008 were fairly hectic but that was a true “bubble” fueled by government manipulation to increase home ownership that relied on loose lending standards which financially destroyed many of the buyers it was supposed to help.  Sadly, many who bought were not really qualified to manage the finances and, frankly, many flippers took advantage of the market and sold bad rehabs.  I could go on but my main point is that this is NOT what is happening today.

Today is very different.  The market has been created by a combination of perpetually low interest rates, extremely low inventory and pent-up demand delayed by the pandemic.  Lending standards appear to be solid so buyers are better situated today, at least financially.  That being said, this cannot go on forever.  Interest rates have been rising slightly but there is plenty of money to lend.

Two significant variables are likely to change.  One is the number of buyers.  If this is anything like the “bubble years”, buyers have jumped off and over the proverbial fence and decided to buy earlier than they had been planning.  Sooner or later the market runs low or out of qualified buyers and I hope that does not result in easing lending standards.  The other variable is the inventory level.  My best guess is that the number of properties for sale will rise once whatever is holding owners back changes.  Just as the number of buyers was inflated by a number of factors, I believe that owners have been held back by a number of factors.  These diverging trends produced what we are seeing today.

Real Estate depends on “supply and demand”:  buyers and sellers are on opposite ends of a proverbial see-saw.  The supply of one often exceeds the supply of the other causing prices to rise and fall.  Competition drives prices up; excess inventory drives them down.  External factors like interest rates, the general economy and other variables like a pandemic play a vital role.  So back to the original  question, is it a better time to sell or to buy?  Let me break it down this way.

I believe that the group that has or had the most to gain in the current environment are the owners of properties which they were not selling to buy something else.  I call these “extra” properties.  Whether they are vacant, used for investment or the owners were willing to go into a rental or some other arrangement, those owners only had to focus on getting the most they could for their property.  What they achieve is determined by their understanding of what is going on and their risk tolerance.  Did they sell too soon or did they wait too long?  Many will regret missing the opportunity to “cash in”.

While I value home ownership and embrace the concept of owning compared to renting, I fear that the group who may have the most to lose are the buyers who jumped in without really thinking long-term.  It is nice to talk about building equity and owning a home for almost the same monthly payment as your rent but home ownership is more complicated than numbers.  A home purchase decision can easily become regrettable if one or more of the following happens:  you spend your savings for a down payment and suffer a loss where your savings are needed, you buy without doing the legwork to see if a neighborhood or house fits your lifestyle (having to resell in the short term can be costly), you made an offer you come to regret (did you buy “sight unseen” or waive inspections to make your offer more competitive?).  Long term, Real Estate tends to be a great investment.  However, the short term is more volatile.  Either way, you have to live somewhere but Real Estate is an investment and subject to risk.

Don’t get me wrong, private home ownership is one of the many blessings we have in America.  However, with any opportunity comes responsibility.  Buying Real Estate is an emotional decision justified with logic.  “Normal” markets generally allow a buyer time to really consider whether it is the right time for them to buy and whether a specific house really fits their “wants” and “needs”.  You may have time for a second showing or to have family and friends take a look.  Sadly, I have worked with many sellers who told me they wish they had bought another house.  I have heard many stories of how they made their decision, what they wish they had done differently and how their decision impacted their life.  Where you live affects the quality of your life.  A poor decision can rob you of equity.

The current market does not generally allow a lot of time to think and ponder, let alone compare your options.  It may compel buyers to make unwise offers they may come to regret.  I have heard many buyers respond to being told that a seller accepted another offer by saying “it wasn’t meant to be”.  That is a great response, especially if they meant it.  I have also seen people react as if their world were crumbling.  I try to prepare my clients as best I can and hope that they are ready for the process.  Planning to buy Real Estate requires a serious commitment and can be like a full-time job.

If the last frenzy was any indication, I suspect that 10 to 15 years from now, some of today’s buyers may find that their house is worth about what they paid, no more and hopefully no less.  At least that means that they “broke even”.  You have to live somewhere.  After 10 to 15 years of paying rent you walk away with nothing and, chances are, your rent has gone up dramatically.

On the other hand, unless they are forced to sell, I don’t see sellers reminiscing about a house they sold, wishing they could get it back.  Cars have that effect but not houses.  That is not to say that all sellers succeed.  Their motivation or sense of urgency may cause them to accept an offer that was not the best.  On the other hand, patience is a virtue but it can be expensive.  Contingencies within an offer can cost them money even if the price seemed nice.  A seller needs to be informed about the market just as buyers do.  Are they more focused on the money they achieve or how long it takes to sell?

There is one more group to consider:  the seller who needs or wants to sell one house to buy their “next home”.  In this market, they may be facing an uphill battle especially if they have competition.  That type of contingency can really impact the process.  It also impacts prospective buyers for their house.  I see listing contracts expire or get canceled because a seller wants a buyer to give them time to find a house or they want a short-term rent-back.  Any of that may be a concern for buyers.

If a seller is buying their “next home”, aside from how they manage an agreement with their buyer or the seller of the home they like, they need to compare their market with that of their “next home”.  It may be a great time to sell, convincing them that they may never have another chance to get what this market offers.  However, what will their “next home” cost them?  One of the ironies I have seen a number of times is the owner who expects top dollar for their home and thinks they can get their “next home” cheap.  There is a serious disconnect there.  On the other hand, while the two processes have to be coordinated, I have seen sellers who really needed to reduce their asking price but refused to even consider it.  If a reduction makes buying impossible I understand that but ego can get in the way.  If the seller’s property’s market value is flat or declining and the cost of buying is rising, we have a conflict.  Every day, week or month that passes is costing them more than they are gaining.  Some sellers are willing to rent so that they can sell and, ideally, buy later when prices stabilize, whatever that means.

Buying or selling as a single, disconnected act is one thing.  No one can predict what tomorrow will bring and decisions always look clearer in hindsight.  Tying a sale to a purchase or a purchase to a sale takes the game from checkers to chess and expands the thinking.  The possibilities can be endless!  All you can do is get the best information you can, decide what you want and need to accomplish and know when to make a move or when to hold back.

There is no time for inexperience, empty promises or false expectations.

HIRE WISELY:  We are not all the same!

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