7 Things Every Buyer Should Know About Real Estate in an Escalating Market
By Emilio DiSpirito, Licensed Rhode Island Real Estate Agent / Member of National Association of Realtors 401-359-2338 emiliodiv@gmail.com
Being a buyer in 2018 and 2019 will absolutely have its benefits, however, will cost you more than it did over the recent past years. In this article, we are going to discuss 7 things every buyer should know about real estate in this escalating market!
1.) What is an escalating real estate market?
Picture an escalator at the mall, the one that goes up. Like a chart or a staircase, it brings you from one level to another level. In 2018 going into 2019, we will experience a new level of increased prices and mortgage interest rates.
2.) How much are home values expected to rise?
Before we talk about where we are going, we must first realize where we have come. Prices rose 13% on the median single-family home in Rhode Island in 2017 over 2016, multi-family homes 18%! Those numbers are massive seeing as historically, real estate should grow 3.5%.
One last fact before we jump ahead; Single Family home prices rose 9% so far in 2018 year over year from 2017 and multi-family prices rose another 20%. Condominiums saw a 16% increase in 2018.
Where are home prices expected to go? Prices across the board are expected to rise between 9 and 10% here in Rhode Island.
FACT: The Median Single Family, Multi-Family and Condominium Home prices peaked in June of 2006 at $290,000 which is 7% higher than today's $270,000 median price.
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| The chart represents median Single Family, Multi-Family and Condominium Prices in Rhode Island Between 2004 to 2018 |
3.) Where are interest rates going?
Interest rates, like pricing, are going up. We could see 6% in 2019 after the Fed hikes rates as they are anticipating. Rates were at their lowest in 2017 at 3.25%.
4.) How much more will the same house cost me in 2019?
Let's take the median price point of $270,000 with the June 2018 30-year fixed FHA mortgage rate of 4.75%. You are left with a mortgage payment of $1359 which includes principle and interest.
In 2019, rates should be 6% and prices are projected to be 9% higher for a median price of $294,300. Your mortgage payment under the same 30 year fixed FHA rate of 6% will now be $1703 per month. An additional $344 per month and $4,128 per year.
5.) What is driving the current real estate market?
Simply put, supply and demand are driving the current real estate market. There are more buyers than homes available for sale. When you have increased demand and low supply, prices increase. When you have low demand and high supply, prices fall.
Here are the factors contributing to the low supply of homes available for buyers:
- Student Loan Debt has forced mom and dad to hold on to their home which accommodates their graduate that is having a hard time making ends meet.
- Baby Boomers are caretakers of mom and dad and need the bigger home.
- Homeowners who bought with rates in the 3% are worried they will be spending more per month when they downsize.
- Builders are having a hard time finding the right kind of land and are hit with increased costs of materials, land, labor, etc.
- Builders are having a difficult time finding qualified labor.
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6.) How to Place Offers?
When you are touring homes in hot price ranges and see several buyers walking out as you walk in and walking in as you walk out, you need to understand that you will be going up against multiple buyers when placing offers.
Here are some quick tips to get the home you want:
- Obtain a mortgage pre-approval before you shop. You can't place an offer without it because no one will take you seriously when they have 3 other buyers with proof they can obtain a mortgage. (We can point you in the right direction).
- For properties with a lot of interested buyers - Go in with your best foot forward. Offer at or above purchase price with a 30 day or less mortgage approval and flexible closing date if you can.
- If it is an owner-occupied property, write the owners a heartfelt letter. Almost like a job interview, people want to make sure they get the best candidate.
- Go in with a buyers agent. A buyers agent will have your back and will help you navigate through the 175+ steps involved with buying a home.
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7.) Where do buyers have the hardest time?
Buyers have the hardest time when bringing outside parties in to help them make a decision. Sometimes it can be parents, friends, extended family, etc. If these people are not involved from the start, they are in the same boat you will be in from day one without the hard knock education of losing offers, seeing the flow of buyers in and out of properties and getting the buyer consultation from your Realtor. Have them come in from the get-go and view every property with you if you will be consulting them for advice.
Placing offers is not something buyers have an easy time with. First time home buyers lose 3 homes on average before they realize it's best to place an aggressive offer in this market. If you want to find a home that needs work or that you can get less than list price, you will want to search for homes that have been on the market for over 90 days. These homes are almost always overpriced anyways and will need a lot of work.
Home inspections come up and can cause concern to buyers. Make sure to hire the right home inspector, someone who is through but does not "overdo" it and scare you with minor repairs. Homes require a lot of maintenance, and it's important you understand that before buying. When buying an existing home, ask sellers for large-scale repairs and do not nickel and dime them for that outlet that is not a GFI ($12 fix). Many sellers will tell buyers to take a hike, especially when they have received multiple offers and buyers waiting with baited breath!!
