By Strategic Passive Investments
In June 2022, Forbes reported that analysts across the country were warning that homebuyers waiting for prices to “suddenly plummet to what they were in the past” were probably making a serious mistake. In the words of Tabitha Mazzara, director of operations at the Mortgage Bank of California, “If you are ready to buy, don’t wait because prices are not headed dramatically downward to what our parents paid.” She added, “Things might dip a bit, there is no cliff dive [coming].”
Of course, Mazzara is a mortgage lender. She wants her customers to figure out a way to buy – and buy now – because that is her job! So readers should take her comments with a grain of salt. However, her overall message (“no cliff dive on the way”) is one that real estate investors must take seriously.
In today’s post-pandemic market, many investors have felt the only viable strategy was to watch and wait, prepared with cash, for the inevitable crash. At least, it felt like it ought to be inevitable since prices had screamed upward for so long.
Analysts have been throwing around terms like “housing bubble” and “the next crash” for more than a year now. How much longer can it really be? Well, the truth is tough: It could be a long, long time.
Many investors have been misled by verbiage that includes words like “cooling housing market” and “falling home prices” that are being tossed around in the media. However, the truth is that home prices are not falling; they are just rising by single digits instead of double or triple ones. Furthermore, inventory is not flooding the market nor does it appear likely to do so.
Although there are slightly more homes on the market in many markets today than there were at the beginning of 2022, there are still far, far fewer on the market than there were in, say, 2015. In fact, in one of Realtor.com’s “markets where buyers might have an edge,” the argument was actually that because a market had only 10 percent of the inventory it listed in 2015 available now, it might be a good market because it could end up overvalued in the next few years! That is not a wait-and-see kind of situation unless you are not worried about actually acquiring properties in the foreseeable future.
Fortunately, real estate investors are the most creative population of people in existence. Although the pandemic has isolated us and, for many, placed us in positions where we are feeling demonized because we own rentals and had to get paid rent or face foreclosure ourselves, we still are more innovative than just about any other group of businesspeople. That is why it is so important that real estate investors in 2022 refuse to simply accept the generally held notion that there is no way to get good deals until the current real estate trends “correct” or reverse to some extent.
The truth is that you can leverage the current “hot” housing market to your advantage if you are willing to think outside the box and be persistent.
Remember, Anxiety is Distress to a Seller
While most investors realize that the odds of not being able to sell a home – even one in less-than-perfect condition – in today’s market are pretty low, many homeowners do not have the reassurance of this confidence. Furthermore, remember that many homeowners do not want to deal with the stress and emotional tension of selling their home, particularly if it needs work, has a lot of clutter, or lacks updated appliances, layout, or amenities. These homeowners may know academically that the housing market is hot, but they are not necessarily emotionally equipped to deal with selling their property in the hot market.
If a homeowner feels anxious about selling their house or, as so many do, feels serious anxiety over missing the peak of the market because they have not listed or sold yet, then they are quite likely to work with you on a win-win deal with a fast close even if they get far less than retail price in order to avoid the hassle and stress of selling their home in a conventional manner.
According to Realtor.com data, that anxiety is likely to get worse. More and more homeowners are facing price cuts as 2022 progresses, and although that does not mean that they are not going to sell for far more than they owe on their homes, it is stressful to know that they may not get as much as they had mentally been preparing to receive. As one agent in Denver put it, “There are a lot of sellers who are panicky. They feel like they missed the height of the market.” In Denver, nearly everything is still going under contract quickly and with multiple offers, but there are fewer offers overall. Essentially, if you overprice your home, you might have to cut the price.
In today’s surreal market, that is freaking homeowners out. Those homeowners may actually elect to work with you rather than sell on the market because they feel so anxious about getting their home sold at all. Are they truly distressed sellers the way we might have referred to a distressed seller in 2009? Not really. Are they feeling a similar level of anxiety, however, misplaced? Absolutely. And that means investors are in a position to help.
Mortgages are Once More a Source of Concern
Most homeowners today remember the housing crash of the mid-2000s and, furthermore, have some vague notion that it had to do with rising interest rates. However, because many homeowners did not own their own homes in the mid-2000s but instead watched older family members and colleagues struggle, there is a misconception that rising interest rates always end in disaster for homeowners. In reality, of course, fixed-rate loans should not be affected. That is not necessarily enough to help relieve the tension for first-time owners who bought in the last few years – especially if they have a variable rate.
Of course, a truly worrisome element for some borrowers is the end of forbearance on mortgage payments, foreclosures, and eviction for nonpayment. Homeowners who were either compelled or elected to miss mortgage payments during 2020 and 2021 are now receiving notices that those “loans” from their lender are coming due. Many owe the entire amount skipped in full.
While an objective observer might note that the vast majority of homeowners could sell their homes on the open market and cover the missed payments as well as walk away with equity, many homeowners are frozen with fear at the idea of dealing with the missed payments. Those homeowners can legitimately use your help handling the process of selling their home and may opt to sell to you rather than deal with the lender directly.
Interest Rates are Rising – and It is a Threat
While interest rates are still low by historic standards (in the 1980s, they hit an average of 16.63 percent at one point), many homeowners fear that today’s buyers are going to be unable to finance their home purchases even if they want to buy. As one New Orleans homeowner in a hurry to sell put it, “I don’t want to be that person stuck with a house that costs way more than it’s actually worth.” That particular homeowner elected to list her home about $15,000 below market value in hopes of breaking even, saying she would consider a quick sale “a win.”
For sellers like this, a real estate investor ready to pay cash and not quibble over whether the repairs are done before or after the sale could be a godsend, so do not give up! If you are having trouble finding leads on your own, working with a boutique investment firm specializing in generating leads and helping investors acquire properties may be a good solution. Regardless of how you persist, you must persist in your real estate investing! Otherwise, you will let a hot market needlessly defeat your goals.