The winner in these crazy bidding wars isn’t the buyer. It’s the seller. For buyers, it’s a Perfect Time to make a Terrible Deal.
Wolf Street report – tijd je (Amerikaanse) huis te verkopen
Het Wolf Street report van deze week duikt in de stijgende huizenprijzen in Amerika, en de conclusie is duidelijk: dit is hèt moment om je huis te verkopen en eventueel zelfs te gaan huren.
Publicatie 25 april
Transcriptie
Regardless of who is doing the counting, they all agree: Home prices are surging, and specifically, the prices of single-family houses are surging. This is less the case for condo prices. In some cities, for example in San Francisco, condo prices are actually down.
Overall home prices – that includes houses, condos and co-ops – have spiked by 17% in March compared to March last year, according to the National Association of Realtors. In terms of single-family houses by themselves, prices have spiked by over 18%. In some red-hot markets, prices have spiked by 25% or more.
There is plenty of condo inventory on the market. But there has been a sudden land rush to buy houses, and inventory of houses has become very tight.
This tight inventory is in part the result of homeowners not selling their old home when they buy a new home. They’re trying to ride up the wave of surging prices with both homes. This is now common practice; it’s a highly leveraged financial gamble, and while this gamble is working, it makes perfect financial sense.
Every month that you wait with selling the old house that is now vacant, the market keeps getting crazier, and more stories are being circulated about insane bidding wars, huge amounts paid over asking prices with conditions and inspections waved, as buyers are suffering a pandemic of FOMO, the fear of missing out.
For buyers, this is a terrible time trying to buy a home. The winner in a crazy bidding war isn’t the final buyer. It’s the seller of the home.
In these crazy bidding wars, the buyer is the loser. A bidding war is not a win-win deal. A bidding war is a win-lose deal. Bad deals are made in good times. And for buyers, this is a perfect time to make a terrible deal.
But for sellers, this is the perfect time to make a great deal. And when the market turns, that opportunity to clean out an eager FOMO-driven buyer will suddenly be gone.
And something else will be gone: liquidity.
Liquidity in the housing market is when you can easily and quickly sell your home at the price you envision, or for even more.
Under normal conditions, a housing market is not very liquid. It takes weeks or months to find an interested buyer. And that may be the only buyer that shows up at that price. And that buyer wants to negotiate the price down.
Cutting the price might bring out more buyers. And then the buyers have conditions, and there are inspections to be made, and buyers negotiate and haggle and want a better deal, and they walk away, or they might not get the mortgage needed to buy the home at that price, or whatever.
In a down-market, when home prices are declining, the housing market becomes illiquid at the prices that sellers envision. No one shows up. And you cannot sell at that price. You have to cut the price, and even then, no one shows up. But you can’t cut the price further because if you did cut to a level where you might be able to sell it, you couldn’t even pay off the mortgage with the sales proceeds.
And now the eager seller is stuck. At that point, some eager sellers might stop making mortgage payments and wait for the bank to take the home back. Others sell the home and cough up the difference from their savings to pay off the bank. Others are holding out, they pull the home off the market, waiting for better times, and paying the carrying costs of holding the house.
However they’re doing it, getting out from under a now overpriced home in an illiquid market is an arduous painful procedure.
But it’s particularly arduous and painful when it’s a second home that is now vacant; and that has carrying costs, such as a mortgage, insurance, taxes, and maintenance, and where renting it out wouldn’t even cover the mortgage payments. During the housing bust, a lot of damage was done by people who owned multiple homes that they walked away from.
This type of market is now just a distant memory, if even that. In many people’s minds, home prices never decline. You can’t lose money in real estate, as the saying goes. But that kind of thinking clouds decision making about timing.
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Eerdere afleveringen van het Wolfstreet report vindt u hier.