Is it Possible to Time the Housing Market?
As millions of Americans wait to see how the economy will respond in the midst of the COVID-19 worldwide outbreak, many are asking if spring will still be the right time to buy a home. While no one can be certain what will happen in the housing market over the next few months, we can prepare for a variety of scenarios based on what’s been done before.
On March 3rd, the Federal Reserve unanimously approved to cut interest rates by half a percentage point— their biggest one-time rate cut since the 2008 financial crisis. Although there is no direct correlation between the Fed and mortgage rates, it’s common for rates to follow market trends. So, if rates continue to stay low, it might be a good time for buyers to invest.
Types of Real Estate Markets
Real estate markets, although always changing, usually fall into three main categories.
A seller’s market happens when demand exceeds supply. So, in this case, there are too many buyers and too few listings. This often leads to multiple buyers interested in a single property. According to RedFin, this is an ideal time for homeowners to sell because there’s a better chance the property will sell for the asking price, if not higher. Homebuyers should be highly prepared when making an offer on a house in a seller’s market. Because the seller has the advantage, buyers will want to make sure that they:
- Know how much house they can actually afford
- Meet with a lender to get approved for a loan
- Have a down payment saved
When Do Owners Typically Sell?
According to a recent Zillow survey, the best time to sell nationwide is the first two weeks of May. On average, homes sold May 1 to May 15 sell six days faster than the average listing. Not to mention, these quick sellers also see a $1,600 higher return on their homes.
Although the exact date to sell is debatable, most reports agree that April-June is the sweet spot in the market for many reasons. Such as:
- Moving in the dry, warm season is preferred to the colder, wet season
- Curb appeal increases as flowers and trees bloom
- Tax refunds have been distributed and buyers are looking to make use of this extra cash
- The end of the school year marks an easy transition for buyers (and their kids
A buyer’s market occurs when inventory exceeds buyers. This is an ideal time for buyers for many reasons, such as:
- Increased time to house hunt
- Fewer bids on a property
- More homes to choose from
- Sellers are more willing to go below asking price
A neutral market is a balance of the previous two. Interest rates are typically affordable, and the number of buyers and sellers are equal. Keep in mind that there are still occurrences in neutral markets for the buyer or seller to “win”, but the scales won’t tip heavily in either direction.
Timing the Market
Because the market is constantly changing, there’s never any guarantee that “timing the market” will work out in your favor. However, if you can afford to wait for the right market to buy or sell, there are financial benefits* that could occur.
Scenario 1: Buying in a Buyer’s Market
When there’s an abundance of homes selling on the market, this provides a great opportunity for buyers to invest in real estate. In some cases, sellers may not receive multiple offers on their home, so buyers can shoot lower than asking price.
Pro: Sellers tend to be more agreeable and buyers have more time to browse.
Con: Buyers may have to wait out the market and be ready to invest as soon as the scales tip in their favor.
Scenario 2: Selling in a Buyer’s Market
Sellers in a buyer’s market often lose equity on their home because of the increased demand. As we mentioned above, buyers have the opportunity to make lowball offers and make more demands when it comes to covering costs or increasing the number of inspections.
Pro: If you need to move quickly because of a job or other demanding situation, your house will have plenty of opportunities to sell.
Con: You may lose equity on your home and receive a lower offer than you would in a seller’s market.
Scenario 3: Buying in a Seller’s Market
As a buyer, if you can avoid buying in a seller’s market, you should probably wait. Not only will homes be more expensive, you may end up buying a home “as is” with little-to-no repairs made by the seller.
Pro: Seller’s markets usually occur in the spring and summer when the weather is more aggregable with moving conditions and kids are out of school.
Con: Buyers will likely pay a much higher price for a home than if it were a buyer’s market.
Scenario 4: Selling in a Seller’s Market
Not only will your home go for asking price or above, as a seller in a seller’s market, but buyers will also be more willing to let “the little things” go, such as minor repairs or covering closing costs.
Pro: The house could sell above asking price.
Con: You may have to wait out the market through slower seasons until buyers are ready to move.
Unsure of what the future of homeownership could look like for you in the coming months? Contact a Mortgage Advisor today.