To all you wise parents in the PNW, or any other “hot market” area. DD and fiancée are desperately trying to search for a home as prices remain extremely high, and interest rates rise. Non-techies with modest salaries, their max. budget is closer to low - mid 600’s. They would love something that is livable, has good bones, but needs work they can do themselves over time, but it is impossible to find anything that is not grabbed by a developer, flipped, and listed in the $800’s or more! Any suggestions on how to look for such homes?
I would normally suggest waiting for rates and prices to “settle” but they’ve been waiting, and looking for a few years, while saving for a down payment. Meanwhile, the cost of houses increased so much faster than they could keep up. They’re terrified it will continue to rise , but desperation is also not a great way to house-hunt.
I’ve heard comments that high interest rates are not necessarily a problem, and home prices will eventually drop. Maybe! Our first home mortgage rate was in the 14% range too, but starter home costs were literally 10% of what they are now! There’s a significant difference when applying current rates to much higher sales costs.
This is not a problem just in the PNW. Middle-income earners are being priced out of the market everywhere. It just seems to be magnified there.
I don’t have any good advice, but my son and DIL just relocated to Seattle and wound up buying a house sight unseen! They moved from Madison WI. Son got a 40% increase in salary, but their mortgage is three times what it was in Madison.
In 2016 - D worked with a person from Redfin in Seattle. They have a different business model of not having a commission I think? It worked out well when houses at that price range (we are talking 700 sq ft home) were snatched up within a day and bids were over asking price. They had a preapproved loan? from a local bank ready. They looked at the neighborhoods, school districts, yard, driveway and garage. They rented for one year before starting to buy and the mortgage was the same as the rent payment (after the downpayment).
D and SIL made it their mission to find a home and bid on a lot of houses only to find they sold cash with $100,000 over asking price in a day. An inspector type person was paid to look at the houses quickly and made sure they were OK. The house they got was one they honestly could not remember well because they looked and bid on so many. I’m not sure if they bid on more than one at a time (probably not). It worked out fine and they have been remodeling (finished out the attic, put in skylights, roof, floors, counters, etc.) gradually ever since. It really is beautiful. They love doing this, so that helped. The 1940’s home was very move in ready though when they bought it.
It is my understanding that the market is not so hot now that the interest rates have gone up.
This was 2016 and I am sure the game has changed.
Tell them to tell everyone they know and everyone they meet that they are looking for a home. They may be able to score a FSBO as-is. That is how I sold my mom’s house when she moved to a retirement place. The neighbors knew she was moving and one of them approached me about buying it. I never even put it on the market.
I live in a super hot area where many houses are flips. A house on a neighboring street was sold in Dec 2021 for $450K and the buyers flipped it and now have it on the market for $850K. That’s the kind of crazy it is. I do not think they will get $850K for it, but I bet they will get $650 or $700. Many houses in our area are bought before they are even put on the market. Word of mouth is probably going to be their best bet.
They can also try writing letters to folks in neighborhoods they have targeted. I don’t like that as much, but it might work. Maybe just go for a walk in the neighborhoods they like and say hi to anyone they see out in their yard and explain their situation.
I’m in the Denver metro area where home prices have been crazy for awhile. My advice is:
Find an experienced realtor who is very familiar with the market. An established realtor will be a skilled negotiator, will know which neighborhoods are up-and-coming (i.e. good deals), and may have access to pocket listings, off-market listings marketed to potential buyers through private channels.
Be flexible. They may have to compromise on some aspects if they want to buy right now. The key is deciding which aspects are deal breakers and which ones are negotiable.
Consider a new build. I know a few families who opted to build instead of buying an existing home. Prices were comparable and they were able to customize the home to their specifications.
I don’t envy anyone trying to purchase in a hot real estate market. Buying a home is stressful enough without all the added competition. Best of luck to them.
It is definitely slowing down here… we walk our north-east of the city neighborhood regularly, and several houses with realtor signs still have those signs up a month they went on the market. Are they considering any particular area? North? South?
There are several companies that will buy the house for them, with cash, and then sell it to them the same day. I think they charge a 1% fee. Ribbon is the most well known, but there are others.
One strategy is to work with a broker who can advise them of when a property they might like will list. (Brokers see MLS listings before they are listings. Not sure if they are just for their agency or all.)
Before it lists, they can offer an amount over the asking price. This offer should expire before the listing time. Note that they may have less than a day to do this, so they’ll need to have their ducks in a row in terms of neighborhood etc and be willing to do this without seeing the property. Conditions need to be minimal, deposit and time to finalize short, etc.
The benefit to the buyer is that it keeps the property out of a bidding war. A motivated seller who just wants to get it done might like this.
I met someone who purchased this way on a flight to a hot market where two months later, I was the recipient of such an offer I was selling for an elderly relative. Both parties run the risk of not getting a true “market” price, but it’s an expedient approach for those who are motivated on both sides.
Working with a real estate agent does help when the agent finds out about a property preparing to be listed and gets you in (and your offer) before it officially hits the market. That’s how we found our current property.
But when one lives in an area where one’s income does not match up to the cost of housing in a desirable area, one option to consider is a multi-family home. This ended up being my solution when I was a public school teacher in a poorly-paid southern state (but living in a city with expensive housing for safe areas). One would need to have enough money not just for the down payment, but a reserve fund in the event of vacancies, repairs for the rental, etc. But, getting the rent money from a unit to help contribute towards monthly home expenses made the trade very worthwhile for me. There is the lack of a single-family home (i.e. being considerate about noise) and the need to be prepared for any issues that arise, but for the right people, it’s definitely an option to consider.
Our strategy when we were young was being willing to live with a long commute. Not ideal but it allowed us to build equity in a home and then over time we were able to live in the location that we wanted.
The market is dropping in Seattle. Sales are down and people are cutting prices. No way would I buy a house right now unless I could find an amazing deal. Starter homes around here will always be tough to find, however. No telling what the future holds, but prices really zoomed up too far and it looks like they’re sliding. I just read people are offering incentives for condos.
I’ve been advising my Seattle kid, for a couple of years, to wait for the prices to drop or inventory to improve before buying. Even if they don’t drop down to 2011-2015 numbers, they may drop some or, at least, you’d have more choices and less intensity about competition. I suggested working on saving a bigger down payment and try renting in several different neighborhoods. I figure it would cost around 10% to sell a home in the “wrong” area and the different neighborhoods are a big thing in Seattle. Feel free to PM me
My (adult) D just purchased a 2 bed 1 ba condo (townhome) in Echo Park - nearly downtown Los Angeles - not her “ideal” neighborhood but “good enough” - she will have a studio to work in and it separates her living and working spaces. The bathroom is tiny (like 60 sq ft) and it & the kitchen need updating. We’ve been talking for years about the 3 to 5 year plan, lowering expectations and prepare to make some upgrades. She literally went with a family friend who is an experienced realtor and saw 2 places and decided that day she could live in 843 sq ft since it’s 2 floors. I will say the view from her soon to be studio is stunning (same view from the downstairs balcony), but the neighborhood is less than ideal. She’s not phased having lived in various parts of NYC and now has a car. The building is safe and several creatives live there in 38 units. I will help her pay the HOA so her monthly payment is equal to the rent she’s paying.
I worry that House Hunters and other shows like it skew first time homebuyer’s vision. My own grandmother bought her first place, in a condo building she loved, a 400 sq ft studio; 5 years later built enough equity to upgrade to a 1 bedroom in the same complex; and 3 years later into the unit of her dreams, a 2+2 which later sold after her death for about 20x the studio.
My suggestion for anyone (especially young ones) looking for their first place is to step outside their ideal, and look towards the future. Buck up for 3-5 years, and build some equity.
The view from my daughter’s soon to be studio - it was set up as the master, which she laughed at…wall to wall window overlooking Echo Park - personally I think she scored - icky neighborhood or not!
@scubasue one of my coworkers (early 40’s) did that here in San Diego 4 months ago to get into a 1.8 million single family home from the condo he and his wife own. Now they have not been able to sell the condo currently listed at $1.1 million. They have dropped the condo price by $220k and still have not been able to sell. So they are paying rent on the house they have promised to buy and are paying the condo mortgage. I think the company they used for the cash offer charged them $50k.
Yes, they definitely should not have bought before they sold. I’m surprised they could qualify for a loan under those circumstances.
It’s my understanding that most of the folks using this service are trying to buy their first home. Buyers using this service, of course, have to have been approved for the loan they will use to complete the three way transaction–usually all on the same day.
l’m not necessarily advocating anyone use this service but I do understand how it could be a solution for young buyers who can otherwise afford the house they want, but can’t compete against cash offers.
Your daughter did well with her purchase.
D1’s best friend and her husband have been looking for 3 years in NYC. They want a 3 bedroom in a good school district. The couple is not sure about whether they want to have kids.
D1 said, “why worry about school district until a kid is at least 3 years old. A kid could sleep any where for the first 2 years.”
D1 was right. There is no need to view the first home purchase as the forever home.
Instead of looking at traditional 30 year amortizing loan, also look into 5 or 10 year interest only loans. Payments can be a lot lower. I do not think it is necessary to pay down principle in order to benefit from owning a real estate. I am closed to retirement and I have no plan of paying off my mortgage because I get very good tax deduction off my mortgage interest.
I’ve lived in my house for 30 years but feel like I could write a book on today’s market based on my ds1’s experience and my next-door neighbors, who move tomorrow. Plus just being in a really hot market, similar to Seattle.
One thing my kids did, which was counterintuitive to me but worked for them, was to increase the price of home they were looking at. There simply was too much competition at the starter-home price. So they looked at homes at the top of their budget, rather than looking at a lower price point and escalating up in a bidding war. It worked. After getting outbid on several homes at the starter-home level, they won the first home they bid on at the next tier, offering that list price. I couldn’t believe that worked. And it’s a great house in a good neighborhood. Sometimes it’s just luck, finding the right buyer with the right seller.
Lots of things a person can do to be a more attractive offer – show interest by going with a large escrow, be flexible with a lease back in case that’s desired, escalation clauses, etc. Some people are forgoing inspection. I couldn’t do that, personally.
Plus just being in a really hot market, similar to Seattle.