Should we buy in this crazy seller’s market?
It’s not easy to become a homeowner in today’s market. The successful typically pay over market value with short contingency periods and negligible repair request. Market value routinely becomes $10,000 - $40,000 over the last similar sale.
According to local economist Steven Thomas, the active inventory has been at low levels ever since 2012. As of November 26, there are only 3,469 properties on the market in all of Orange County. Meanwhile, demand is through the roof. Driven by interest rates below 3%, today’s demand is at 2,621 properties in escrow. Another way of looking at it - if no more homes entered the market, we would be out of inventory in 40 days. That’s quite remarkable.
Should buyers throw in the towel? Probably not. The market is not expected to change much in 2021, though it could easily continue to rise given low supply and high demand. The key for buyers to consider is not how much they pay for a home, but rather, what their payment is. The payment for a $800,000 loan at 3% is about the same as a payment for a $710,000 loan at 4%. And is about the same for a $630,000 loan at 5%. So a 2% change in interest rates could reduce your spending power by almost 20%.
So should we buy in this crazy seller’s market? If you are financing – most definitely. If you are paying cash and keeping your property long term – historically, also a great decision. The magic formula for real estate investing is quite simple. Buy – Hold – Repeat.