Looking ahead and predicting future trends can be a smart move, especially when it comes to investments. I’ve been in the real estate game for two decades now, and I’m seeing signs that bidding wars for houses are about to make a comeback. Here’s why:
- There’s been a lot of pent-up demand since mid-2022. When the Fed started hiking up rates, a lot of potential homebuyers decided to hit pause on their plans. But life can’t stay on hold forever.
- Mortgage rates took a nosedive after Jerome Powell hinted at a change in direction in 2024. Now, people are expecting three rate cuts in 2024, which could push mortgage rates below 6% for the average 30-year fixed.
- There’s still a lower-than-average supply of houses on the market. This is because a lot of people locked in super low mortgage rates in 2020 and 2021.
- The millennial generation is now in their prime home buying and family formation years, which is driving up demand for real estate.
- The stock market has been doing well, which has made investors richer in 2023 and potentially even richer in 2024.
- The economy is strong, and employment rates are high.
If you’re like me and believe that the real estate market is going to strengthen, now might be a good time to start investing. One option to consider is Fundrise, which manages over $3.3 billion in equity by investing mostly in residential and industrial properties in the Sunbelt region. This area has lower valuations and higher yields.
Now, let me tell you a bit about my personal experience. I decided to buy a home in the last quarter of 2023. My stocks had rebounded, and a high-end home I had been eyeing for over a year came back on the market at a lower price. With high mortgage rates, there wasn’t much competition.
I have two kids, aged 6 and 3. This means I only have 12 and 15 years left with them at home before they head off to college. I believe the best time to own the nicest house you can afford is when your kids are at home. You get to spread the cost across more people, and it brings more comfort and joy to everyone. Once your kids leave, you probably won’t want to buy an even bigger and nicer home.
I didn’t want to wait for the “perfect” time to buy a new home. I didn’t want to live a suboptimal life with the time I had left. I’m an older parent, and I want to live life to the fullest now.
I also hate missing out on the perfect property. Bidding wars can be frustrating because emotions can sometimes cause us to act irrationally and pay above market price. Once bidding wars start, home prices tend to jump up instead of gradually increasing.
If you find your dream property, chances are other people will too. I might have bought a bit too early, but I’d rather buy a little too early than a little too late.
Now, let’s talk about how to prepare for upcoming home bidding wars. I’m 75% sure that the housing market is going to be strong in the first half of 2024. The 25% doubt comes from the possibility of the economy going into a worse-than-expected recession. The Fed tends to be behind the curve. By the time the Fed cuts rates, the economy could already be in trouble.
If you’re not willing to buy a home during the slow winter months or during down markets, here are some tips to prepare if you plan to buy a house when bidding wars return:
- Get pre-approved, not just pre-qualified. Pre-approval involves a much deeper process than pre-qualification and means much more to the seller.
- Be ready to move fast. New listings can attract multiple offers quickly, so be vigilant about new listings and be prepared to see homes and make offers promptly.
- Consider having your agent include an escalation clause in your offer. This will automatically bid higher up to a capped amount if other offers come in higher.
- Highlight your offer strengths through writing. Write a letter to the seller, telling your story and finding commonalities between you and the seller that go beyond money.
- Get pre-inspections done or potentially waive inspections. Inspect the house as thoroughly as possible before making an offer.
- Consider making a larger-than-average down payment and offering a higher earnest money deposit.
- Make a preemptive offer. Even if the seller has set an offer date, you can always make an attractive preemptive offer.
- Consider buying a more expensive home to avoid bidding wars. The more expensive the home, the less competition you’ll face.
- Look for off-market deals. Instruct your real estate agent to seek out off-market opportunities.
Remember, don’t let your emotions get the best of you when submitting a bid. The risk of paying far above the current market price during a bidding war is real. If you win a bidding war, you’ll have to deal with the “winner’s curse,” which means nobody else was willing to pay what you paid. You’ll have to hope the overall market continues to go up after you win.
If you lose a bidding war, take some time to deal with your disappointment and then move on. There will always be another dream house waiting for you. When that time comes, hopefully, your finances will be in even better shape.
Instead of getting into a bidding war, consider investing in real estate more strategically for potentially higher returns. Again, Fundrise is a good option to consider. They manage over $3.3 billion in equity by investing mostly in residential and industrial properties in the Sunbelt region, which has lower valuations and higher yields.
