Homes are Selling Fast - Buyers Don't Have Time to Analyze
The U.S. housing market is so hot that buyers are jumping into contracts without much consideration. Buyers don't have time to think - if they don't commit fast, they'll lose the deal to another bidder.
Although home sales in 2021 have been faster than in the past, in October 2021, most homes sold in 45 days or less. Many sold in just two weeks. The reason? Many people can't afford their mortgage payments, including small investors. Those who can't afford their mortgage payments are selling fast to avoid facing foreclosure.
Some people are downsizing to just one property, including snowbirds who are selling their second homes. Large firms like BlackRock have been taking full advantage of the situation and have been buying every house they can get at a premium.
People are selling their real estate businesses, too
Real estate investors and other business owners are selling their real estate businesses while the housing market is hot. Just about every business related to real estate, including property management and HOA management businesses, is up for sale.
This makes sense for smaller investors who don't have enough capital to make it through the current economic uncertainties facing the United States.
As inflation soars across the economy, experts are talking about hyperinflation, permanent food shortages, and ongoing supply chain disruptions. It's not the best time to own a business - unless you have the capital to carry your operations through a potentially lengthy disrupted economy.
On the other hand, real estate investors with access to large amounts of capital are benefiting from other people's losses.
The problem with buying property too quickly
In most cases, buying a home too fast is risky business. When buyers don't have time to properly inspect and investigate a property, they're bound to miss important things that could even be deal-breakers.
Unlike professional companies that buy homes as-is, private buyers aren't ready to invest tens of thousands of dollars into surprise repairs at the drop of a hat. Buyers want to know exactly what's wrong with a property so they can decide if it's worth fixing if the seller can't fix the problem first.
Severe water damage can be hidden
Severe water damage is perhaps the worst problem a homeowner can face. Buying a new home and discovering water damage is most homeowners' worst nightmare.
The biggest problem is that even professional inspectors can miss severe water damage. For example, it's not uncommon for new homeowners to live in their new home for a few months before discovering water damage. Most of these issues are caused by a leak that was continually treated with bandage solutions until the water damage rotted away the walls and roof on the inside.
It's hard to see this type of water damage without ripping out the drywall. Sometimes water damage is easy to spot when the walls become soft, but most home buyers aren't going to touch every inch of every wall.
Buying a home in today's market requires taking risks
Today's housing market puts homebuyers in the same boat as professional buyers who acquire properties as-is. The difference, however, is that professional buyers don't usually pay market value. The current housing market is not only demanding market value, but many buyers have to pay a premium just to compete.
The listing price for homes has risen significantly in areas like Denver, Austin, Las Vegas, Tampa, and Orlando. Most average around a 20% increase.
Although home prices are rising more than ever, it's not all that new. Home prices have been rising since before the COVID-19 pandemic began.
Affordability has been a major problem for years
CNBC reported that median home prices rose by 30% in the last decade, despite income levels rising by 11%. Homeownership has been out of reach for many people, even before the pandemic began.
What's most shocking is that home prices are up 118% since 1965, but income is only up by 15% since that same time. Homes have become far less affordable over time - more so than any other commodity.
Building wealth with real estate might be over for small investors
Between the risks associated with buying properties quickly, renters not being able to afford rent, and homes being sold for a premium, real estate may not be the optimal wealth building strategy for long. At least, not for small investors.
Experts predict that homes will continue to sell fast in 2022 and buyers will still need to act fast. Buyers who want to acquire property should connect with an agent before making any decisions.
