Dear Buyers,
Can we chat? I’ve been having SO many conversations about buying in today’s market, so I wanted to stir some thoughts and maybe offer some perspective. I hope this will be helpful.
Things to keep in mind about buying a home right now:
Starter home vs dream home: We all want that pristine HGTV flip, but we can’t expect a dream home on a starter budget. In other words, a first home might not have the best upgrades or condition and it probably won’t be found in the best neighborhood either.
Be realistic: Sellers are prone to overprice and that’s their glaring real estate “sin” so to speak, but for buyers I’d say being unrealistic about what you can buy is a big issue. The dream is to pick up a $150,000 brand new modern home in Midtown, but that’s nowhere close to reality. At times it can be sobering to see what you can honestly afford, but if you’re serious about buying it’s best to get up to speed with that. You don’t want to be like Jim Carrey in Dumb & Dumber saying, “So you’re telling me there’s a chance?” No, there’s not a chance to buy that house with your budget.
It’s okay to be picky and patient: Buyers get flack today for being patient. My sense is buyers are picky about getting into contract at the right price and staying in contract. That’s okay and I think you’re wise for being discerning rather than making a flippant decision (like many of us made in 2005). So take your time rather than being hasty. Just be sure you’re realistic that the home you want actually exists in your price range.
Waiting for the market to crash: Quite a few people say they are waiting for the market to crash. The idea is to hold out until prices are low and then swoop in for something cheap. But if a market implodes you might not be able to buy. The temptation is to talk about a crash as if it’s isolated without any effect on income, jobs, consumer confidence, credit scores, etc… But a crash in prices could mean other parts of the economy and life are plummeting too.
The last implosion: There is real concern about buying at the top of the market and I understand why buyers are hesitant. Just remember the implosion that happened last time isn’t the new formula for every future market change. On one hand it’s normal to see prices go up and down, so we can expect to see prices decline at some point because that’s what markets do. But the severe collapse during the last decade isn’t the new template for the future either.
Timing a market perfectly is hard: It sounds easy to time a market perfectly and buy at exactly the right time, but it’s not so easy to pull off in real life. In my experience most people buy because of lifestyle and being able to afford the mortgage payment rather than being technical about where we’re at in a price cycle. I don’t say this to gloss over a growing lack of affordability or frothy prices in some markets, but only to share a real issue. Your lifestyle is likely to be the trump card here. Where do you want to live? What school district do you want for your kids? Or if the market did decline, where do you want to ride it down? (my friend Mike Gobbi asks this honest question). Realize there is no right time for everyone either. I say it’s best to weigh your goals and lifestyle with current market trends. Does buying make sense for your lifestyle and wallet? If the market did go down, would you still be comfortable with the monthly mortgage payment? Those are reasonable and honest questions.
Bring a strong offer: If you are playing the market, bring a strong offer rather than lowballing. I just saw a Realtor on Facebook talking about a client who wanted to offer at 50% of the list price. Yeah, don’t do that. We all know sellers are smoking pricing crack and they need to come down from their “high” expectations, but at the same time sellers are in tune enough to sniff out offers that have no chance.
Fear of missing out & pressure: I recently spoke with a young man who just graduated college and wants to get into real estate. He asked me for advice since he was worried about missing out on the market if he didn’t buy right now. I told him: “Do what you want and be sure you can afford the mortgage. If you can though, get aggressive first about paying down student debt so you have more freedom for future real estate opportunities.” I mention this because there is often pressure to buy RIGHT NOW when in fact timing might not be right for every individual. For this recent grad, I’ll respect whatever decision he makes, but he won’t lack opportunities in the future if he doesn’t buy now.
Pulling the trigger: At some point you have to decide if buying is right for you. I’ve watched friends obsess over prices for years and become paralyzed in making a decision because they’re so worried about the future. Look, either do it or don’t. That’s entirely up to you and there’s no pressure from me. But my hope is for you to come to a place where you have confidence and peace about your decision rather than being anxious for years without any progress.
Talk to a loan officer: Some people can afford the market but they don’t realize it because they haven’t explored options with a professional. This is why the first step is talking to a reputable loan officer. Find out about different financing options and special programs that might be available. Remember, we don’t live in a world where everyone has to bring 20% to the table either.
Prophets: Everyone has ideas about the future, but nobody really knows what will happen. I’m not saying to ignore trends or red flags, but only to be humble about predicting. Also, realize many who make predictions simply move their prophecies to the next year when they don’t come true.
Other: What am I missing? Please speak up in the comments.
That’s my two cents. I hope it was helpful.
Questions: Buyers, any stories to share? Is there any helpful advice here? What are you most concerned about? What am I missing? Anything to add?
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Nice post Ryan! This is a good reality check. At any given point in time, there will be both positive and negative aspects of the market. I totally agree that the important thing is what a person can afford and where they are in life. Thanks for a great post! I loved the Dumb & Dumber reference. One of my favorite movies, much to my wife’s chagrin!
Thanks Jamie. It’s so true. I think it’s too easy to buy into this myth that timing a market is so simple and doable, but it’s really not because lifestyle often usually mandates a move rather than trying to wait out a price cycle. It almost sounds like I’m trying to sugar coat trends here or convince people, but I’m not. This is market truth. It’s just how it works.
Glad you liked the reference. It seemed fitting. 🙂
Oh man… I’d love to see this “open letter” posted on FB so I could “tag” a few folks! ? Great article as always! Thanks for the insights!
Thanks so much. Maybe just share the link? Or share a paragraph of the post and link to the rest? I did post it on my Facebook page for reference. No pressure.
Great tips for buyers Ryan.
Thank you so much Gary.
This is great information. Thanks Ryan! Folks don’t realize that if the market were to crash, so many other things will be happening…like job loss which would make them ineligible to buy. My motto has always been, if you have a good steady job and wish to buy, then buy. Markets go up and down and sometimes, you just need to ride that wave.
Thank you Diana. I appreciate it. I think giving people space to make decisions and helping them think through issues is really key here. I like your perspective.
All good points. We’ve been preaching 1) meet with a lender early in the process so you know where you stand, 2) when you decide on a house, make a strong offer and 3) it’s a competative market out there. You have to ready, financially, mentally and emotionally.
Again, great insight, Ryan.
Excellent advice Luis. Buyers absolutely have to be ready to offer strong. I totally agree. They need to be quick. Finding the right house is a bit like dating too. You probably won’t marry the first person you date, and you’re probably not going to get the first house you offer on either… 🙂
I love this Ryan thank you! Additionally, I always tell my first time buyers that you will have a much more difficult time getting to that dream home if you never own real estate (or just rent) for many more years. Stepping up (sometimes many times) in real estate is easier than waiting to buy the dream house.
Thank you Kelly. Yeah, I agree. The ideal of course is to buy in a lower-priced market so we can deploy the equity to then move up, but there are many ways to do this. I find sometimes people buy a home and then it becomes a rental.
Thanks so much Ryan, great information. I will definitely be sharing this with my buyers who are dragging their feet.
Thank you Lorraine. My sense is buyers are needing to think critically about some of these issues today as these conversations keep coming up. Hopefully some of this will maybe give a framework for thinking about the market. To each his/her own. Do as you wish buyers. This is your choice.
I’ve never met anyone who regretted their first home purchase, but there are plenty of people (me included) currently wish they had bought more in the years earlier.
Did anyone else notice rents in Sacramento have jumped a bit, even with rent controls? That should push more renters into the market for their first time buy.
Great post Ryan.
Thanks Huan. I always appreciate your thoughts. Rents are definitely a factor here. I didn’t write about that, but lots of people are thinking about it. The thing about rent control is it’s going to keep some tenants in place if they’re sitting on really low rent. But otherwise lots of landlords have more incentive to increase rent right now. I’ll be anxious to see studies in coming years to see what actually happens.
Great article, Ryan. Only one thing I would suggest is that college grad who wants to buy right away SHOULD buy if they can afford it asap. The big worry about timing is a red herring. Unlike stocks, real estate will never go to zero. You can guarantee that at some point in the future, the property will be worth more than it is now. Sometimes a lot more. Everybody has to live somewhere and there are more people every day. The LAW of supply and demand is not just a guideline. It is a law. We are now above the insane highs of the 2007 market. Anyone who held on until now will be in positive territory.
If that grad waits until they pay off their student loan, the object of their purchase will have increased in price. It may even increase by so much that even with the elimination of the student loan, they may not be able to afford it. The point is, if you like it and can afford it now, buy it now. The future can go many ways that might affect the affordability. The only thing we know for sure is the property will eventually be worth more than what you paid for it.
One more thing, the other “red herring” that keeps people as renters much longer than they should is they think the first home is their only home. I paid $40,000 for my first home when I was 27. I owned several homes since then. Each time using equity from the previous home to put me and my family in a better situation. If I had waited for the “perfect” home, I’d still be renting. At 66, I just sold my most recent home for about $600k. That’s a 1,500% increase.
Thanks Jim. I always appreciate your take. I won’t say which market this is, but it’s in a different state and it seems to be overheated. In this case I’m guessing prices are going to go down based on what I’ve read as well as feedback from colleagues working that market. Granted, prices could come back up again too.
As my default I’m a huge fan of college students trying to live very simple for a year or two (or more) to try to get a good start on paying down debt. I realize just a year won’t cut it, but it’s amazing how much money we can pay off if we put our mind to it and find ways to really scrounge for a while. I know this from personal experience from when my wife and I were finding ways to pay off college debt 20 years ago when we first got married. We weren’t making much at all, but we moved somewhere less expensive and stopped going out so much. I’m just saying it was so worth it.
I realize some might say, “Okay, Boomer” when reading my take here, but this isn’t for everyone. I do think there is some wisdom here though and I do know it’s possible to find ways to cut back too. For reference, this student said he could rent somewhere for $800 and in my mind I think it’s a great idea to try to be aggressive about paying down what could be a financial noose. This will essentially prepare him to participate in the real estate market in the future. Yet if he can afford it now too and pay down debt, then maybe just buy. That’s up to him. But that was my advice. Right or wrong.
“ I won’t say which market this is, but it’s in a different state and it seems to be overheated. In this case I’m guessing prices are going to go down based on what I’ve read as well as feedback from colleagues working that market.”
Based on the data that you’ve seen, by what percentage range reduction would you expect to return the Sac market back in-line ?
Hi Samuel. I wish I had a great answer, but it’s impossible to say exactly. For reference, the collapse we saw in 2005 saw a 50-60% price decline in Sacramento County depending on which price metric you look at. Though the market correction in the 90s resulted in about a 15% drop. The truth is any market change in the future doesn’t have to behave the same as the past, and there isn’t even the same sort of correction in the past either.
In short, I think it’s a guess as to when the market would change and by how much. So whenever someone predicts I always ask them these questions: What is going to cause the market to change? When will the change start to happen? How much change will there be? And how long will it take?
In case you don’t like my vague but honest answer, here is a look at price cycles in both Sacramento and California to maybe give a little more context. We can see the market tends to be up usually between 8 to 10 years and then we’ve seen a pattern where it softens or goes down for 5-6 years. But again, the past isn’t always a template for the future… https://sacramentoappraisalblog.com/2019/10/22/does-the-market-really-change-every-seven-years/
Thoughts?
Great article as always! Just the other day my son (who is a welder) said: “shouldn’t I just wait for the market to crash before we buy a home?” I politely reminded him that, if that were to happen, given his profession, would he have a job? I always encourage buyers to take their time and be picky; make sure they can ride any wave that comes their way and that they feel prepared to do so. Ambiguity is tough and even tougher in a downturn; but the certainty is that people will always need a place to live.
Thank you very much Adriana. I appreciate it. I like your response and it’s something to consider.
On a side note, when a market does begin to turn, there does tend to be a collective pause where buyers just sort of sit on the sidelines despite more sellers trying to list. I don’t think we have seen that in the local market for now, though there is hesitancy. It’s going to be interesting to continue to gauge the psyche of buyers over the next couple of years. What people think can end up influencing their behavior as we know.
Ryan! You’re brilliant! I hosted a home buyer workshop last night, and I covered much of what you said.
Interestingly, one of my guests who cancelled is someone who’s been talking about buying since 2017, and something always comes up.
It’s always fear-based. What if I lose my job? What if I don’t get my raise? My car isn’t in good shape and I might have to buy another one. How will I afford daycare?
Since we first spoke, he’s changed jobs and gotten raises, and his wife gets great salary and benefits from the state.
Still afraid to pull the trigger.
I have other similar tales, but this one is my nephew!
Thank you so much Steve. Way to go on the buyer workshop too. There really is fear and hesitancy and I have to think the massive collapse we saw over ten years ago is part of the root.
So whether people buy a house or not right now, there is a bigger issue. How can we be driven by confidence instead of worry? Granted, that’s not easy to do because of the squeeze of higher prices, higher rents, higher everything. But the optimist in me has to think it’s possible to figure out a way to do life where we worry less (regardless of circumstances or our financial situation). Okay, that’s getting a little philosophical maybe, but this conversation quickly leads us to examine how we make decisions and what type of life we are hoping to build over time.
Am I allowed to post a link to your website article? It’s that good. 🙂
You are too kind. You never have to ask to link. I would be very honored. Thank you sincerely.
Liked your reference to 20% down. I have talked to a few people recently who were saving up a large down to avoid mortgage insurance. The Seattle market has been on a steady rise, but is beginning to level. These folks now have a stack of rent receipts and a cash down payment, but for either a smaller home or a longer commute than the ones they were looking at 4-5 years ago.
Thank you Barry. Yeah, I find lots of people think 20% down is expected. This really underscores how important it is to actually talk with a professional.
Thanks for the scoop on Seattle. I have heard about the market leveling. Please keep me posted with any big changes in the future. I’m fascinated to hear about other locations.
I think Ryan it would be helpful if you posted what waiting can costs buyers. My lender did a great analysis that shows what waiting potentially costs. Being a listing agent, dealing with entry level housing prices, seeing average price point in Sacramento it is very competitive. Buyers offering $10k over with 20% down are losing multiple times. The demand is over the top. Buyers need to know that being picky, making low offers, asking for ridiculous cosmetic repairs is going to cost you. Buyers today better wake up as 2020 is going to be very competitive given inventory. New. Home builders I talked to in Elk Grove and Sac have sold new builds through September 2020 and are looking to stop taking reservations as demand is so high. Agents need to prepare entry level buyers to suit up as it’s going to be tough for good properties in affordable price points.
JaCi Wallace DRE 00773632 RE/MAX Gold.
Thanks JaCi. I appreciate it. That’s definitely data for consumers to consider. I guess for me it feels unnatural to post stuff like that since I’m not in a selling position. It is still valuable for consideration though, so I welcome you and others to pitch in stats like that. Thanks again.
JaCi, back in the early 90’s we had a rapidly appreciating new home market here in the Seattle area. I appraised several homes multiple homes in a short period: the vacant lot subject to completion of the proposed house; the framed house subject to completion; and the finished house. Same lender client, three different buyers, higher price each time. The builder had sold the property subject to construction in March for, say, $300,000. The final buyer paid $390,000 and occupied it in October. The investor-speculators made the profit and now most builders in this area do not sell until ready to paint the interior.
That’s wild to hear Barry. It reminds me of what we saw in portions of Sacramento between 2004 and 2005 in particular. There was so much speculation and it seemed in many areas prices were up about $10K per month. So by the time the house was built 6-9 months later the investor could basically just sell it for a pretty good profit. So some builders tried to only allow owner occupied buyers, but I’m not sure how successful they were at actually enforcing that. Then the market crashed and builders would take whoever they could get. Funny how things change.
All great points, Ryan. The thing is that all people are different and at different stages of life. I know it is easy to get envious of friends who are buying or may be in a different life situation. You make some very good points about being realistic about what you can afford and being comfortable with the mortgage payment should the economy take a downturn.
Thank you Tom. Envy is no joke. It’s easy to try to keep up with others or outdo people, but nobody’s tombstone says, “I owned more than you.” 🙂
Ryan, the first 13 years of my lending career were in Sacramento and I still have many clients in the area. Your suggestions to buyers applies to any market and any location – this is fantastic!
That’s a huge compliment Michael. Thank you sincerely. Glad you still have some clients here too. 🙂
As a buyer, I’d appreciate it if real estate agents were more up front and blunt about things. I’m currently struggling with whether I am “being unrealistic about what [I] can buy” but when I’ve asked agents about whether my budget is realistic in certain areas, I get a non-committal shoulder shrug. I’ve even gotten “if it’s meant to be…” I’ve researched all I can and need some real world expertise, dagnabit! Yes or no? I’m listing this week and will be a buyer (hopefully) not too long after. I’m afraid agents just want the commission from my listing and don’t care if I find a place after. (I wouldn’t sell if I can’t buy in the desired school district.)
Thanks Sarah. I appreciate you pitching in thoughts. I’d think if you asked a pointed question you’d get a pointed answer. I know how important it is to feel out communication styles and what is going to work, but I find when someone blatantly asks, that’s a sign that person is looking for blatant truth. Whatever the case, I hope you can find someone to work with who will shoot straight and find the right place for you too. Best wishes.
As always you provide a rational, measured, thoughtful post. It hits the nail on the head. Thank you for this very helpful post.
Thank you sincerely Alice. I really appreciate it.
Ryan,
One of your best writes. The Jim Carrey reference “So you are saying we have a chance?” and sellers smoking that pricing crack have me Rotfling.
We Realtors, appraisers, and loan officers deal with six figure numbers every day. It is not hard to lose sight of the sticker shock someone outside our industry suffers when dealing with house prices. I can show a $400,000 house to a buyer, even an experienced investor, that can be picked up for $10,000 under value due to extreme seller motivation and the buyer will balk, hesitate, hem and haw. All because the headline number is so out of proportion to their daily experience.
That’s the reason car salesman used to ignore the window sticker and start negotiating monthly payment with buyers.
People in our industries tend to have better math skills and conceptual grasp than average folks. I have seen sellers happy to take $10,000 price hits in order to shift $2000 in closing costs to a buyer. – And buyers taking on a house needing $10,000 in repairs instead of a better pristine house listed for $2000 more. The seller and buyer in both instances are permitting their psychological wiring to overrule mathematical analysis. Studies have shown that people generally fear a loss and experience greater pain when incurring a loss in far greater proportion than the joy they experience when they have a gain of the same or even a higher amount. For both seller and buyer in my example they feared the (loss) $2,000 extra they have to pay more than the gain of $10,000.
Glad you liked that. Thanks Jim. 🙂
Extremely well stated. I appreciate your commentary sincerely. It’s never just about the math. Real estate is very emotional. This is why some tech companies expecting success are going to be in for a rude awakening. Some will surely succeed of course, but an impersonal algorithm doesn’t always capture the human element or even how irrational people can be within real estate transactions.