Basics for buying in a hot market

Buying a home can be a scary experience. Buyers often imagine the worst. Will I know a good house when I see one? What if I can’t sell the house I bought again? How can I make sure I’m making a good investment? What happens if I pay too much and house prices go down? How do I know the market will stay hot?

After years of strong home price appreciation, it’s natural to wonder how long the good times will last. The truth is that real estate markets are cyclical: prices go up and down. On the positive side, in the long term, prices have tended to rise in this country. As you think about buying, especially in a “hot” market, consider some of these factors to help you determine if you should buy.

duration of ownership

To protect yourself when buying a home, take a long-term horizon. If you’re really worried about depreciation, think more seriously about waiting to buy until you plan to hold the property for at least 5-10 years. This way you can ride out any dips in the market and sell when the market picks up. Try to avoid getting into a situation where you are forced to sell in a falling market. If you’re not sure how long you want to stay in the area, postpone your purchase plans until you’re more sure of where you want to reside.

Examine how length of ownership affects your loan options and interest payments

Be careful when predicting what the market will do regarding interest rates and future home appreciation. Nobody can predict with certainty what the market will do. However, Greenspan and certain economic forecasters have had some reliability in the past. Having a forecast of what interest rates are going to do can be helpful. Judging world events and market volatility can also help.

Keep in mind that a shift away from traditional lending where people pay off a 30-year mortgage, hoping to hit principal-eating payments faster, is falling by the wayside. Option-type loans such as a five-year ARM or an interest-only loan (to name a few) are replacing them. An advantage could be having a low fixed rate to start with, which some may have. Be careful though, because it then jumps to a variable rate (depending on the market, it can be a high interest rate). When the average person moves every 4 to 5 years, a loan option may be appropriate. Then, when you sell the house, the appreciation becomes equity in the next house. It is important to realize that all of this is an appreciation of the price of the house.

construction equity

What if interest rates go up and stay high? Those with low fixed rates over the life of the loan will be in the best position to then want to stay where they are by keeping things and building capital that way. This is not so much the case in a hot market. So building equity through the moving process seems like a mindset shift, at least for some people. For many people, especially those moving from California and Las Vegas, this has been a huge boon in their lives.

Local market speculation

Well, maybe St. George is the next Las Vegas and we’ll all be sorry we didn’t invest more in real estate in this area. However, no one can predict with certainty what will happen to our markets. Brian believes that people will continue to “flock” to St. George as they already do, because it’s centrally located, the winters are mild, it’s geared toward community values ​​(and for those with families, family values). oriented too), and the atmosphere generates a lower crime rate.

While locals are genuinely surprised that prices have risen almost artificially, there is some concern among those who come from places where real estate prices are even higher, leading them to see St. George as a good “market.” hot” to buy – see The Next Hot Real Estate Markets.

Bigger is sometimes better

In order for you to keep your new home for as long as it takes you to appreciate it, you need to make sure the home you buy will meet your long-term needs. This translates to: don’t buy a house that may end up being too small. Many first-time buyers make the mistake of buying a small starter home because it’s charming, in the right neighborhood, or they think it’s all they can afford. But a fifth-floor one-bedroom condo or a two-bedroom, one-bath house on a tiny lot doesn’t leave much room for growth. A better approach might be to buy on the outskirts of a prime neighborhood where you can buy a 3-bedroom, 2-bathroom house for about the same price. It may not have the most prestigious location today, but it could experience good appreciation over a period of time; and not only will you finance your exchange move, but you will also feel more comfortable in the meantime.

On the other hand, it is not good to have a house that is too big if you cannot pay the mortgage. Perhaps much more could be said about this than planning your grow space in advance. Also, remember that when it comes to square footage, bigger doesn’t necessarily mean better. A buyer may complain that they can only afford a 1,500-square-foot home in their price range, and while more square footage is nice to some extent, a well-designed 1,500-square-foot home can be a very comfortable place to be. to live. Long story short, pick a house you can afford (a modest one if applicable) with a little room to grow.

Blueprints of the floor

It is true that some floor plans are better than others. Ideally, there should be a good flow between rooms, one that is conducive to their natural living habits. It’s usually easier to live in a house with a central hallway that leads to many rooms than one that’s designed like a train where you have to go through one room to get to other rooms. A good indoor/outdoor life can also make a big difference. A deck or patio off the kitchen, family room, or dining room provides additional usable space and makes the home feel larger.

In the end, don’t be scared! Some buyers put off their home purchase plans for fear that the housing market will drop. The chances are slim, and indeed this seemingly sensible strategy may be risky if prices do not decline. Regret could show up next year when the market appreciates and you haven’t bought and home prices, in turn, have been pushed beyond your reach. On the other hand, there is usually no need to rush into a market that is bloated with inventory, especially if new housing developments are being worked on. Just remember that an excess supply of homes relative to buyer demand puts downward pressure on home prices. Keep up with your research and plan accordingly.