Reader Question: Is America in a housing bubble? We are attempting to downsize our lifestyle with a smaller home. In both instances we made an offer, someone outbid us. Our home is free and clear, so we are cash buyers. We don’t want to sell until we know we’ve got a place to go. Unfortunately, there are not many homes to look at, so we don’t want to sell our house first and end up compromising on our new home. Home trade-in programs and iBuyers are costly. What other options are available to us?
Monty’s Answer: There is a housing dilemma in the U.S today. Not being an economist, I can only use the experiences I observe on the street. It is a housing shortage brought about mainly by COVID and exacerbated by the federal reserve board policies, primarily with artificially low mortgage interest rates. It appears the situation you find yourself in today is similar to what many other home sellers across the country are experiencing.
First-time homebuyers with no home to sell have a very similar situation. They come into the marketplace and find the shelves nearly bare. When a home does come on the market, it often sells quickly, and in a growing number of instances, is sold for more than the asking price. In some cases, considerably more. Anecdotally, I learned of a home recently that went up for sale and received 30 plus offers within 4 or 5 days.
An article in the March 2021 issue of the Wisconsin Real Estate Magazine states that Wisconsin housing inventory was down 35.8 % in January 2021 over January 2020. Comparing January 2020 to January 2021, the median sale price went from $190k to $210k. The full report is here: https://www.wra.org/HSRJan2021/. COVID, and artificially low-interest rates, are responsible for out-of-control inflation in housing prices.
Here is a link to a recent article on the DearMonty website that reinforces your notion that iBuyers and home trade-in programs are expensive.
The real estate industry has no control over the economy, so they resort to the old stand-by’s to keep sales alive. Trade-in programs, subject to the sale offers, and taking listings subject to locating a suitable new home are the prime examples. Still, all have drawbacks and do not seem to be working well in the current situation.
Coming Soon and iBuyer promotions which began before COVID, are expensive options. Coming Soon is designed for the homebuyer to create an auction-like atmosphere. iBuyers are costly for the sellers because the fees are high and any upside in the sale the iBuyer keeps.
One potential solution
A real estate company could consider creating a home buyer pool with a home to sell and match them to other homeowners in the same situation. Name it the “reality pool.” Near seventy percent of home buyers have a home to sell. So to qualify for the pool, the homebuyer must have a home to sell. Assuming they are eligible, promote these homes as safe homes, and only home buyers that have a home to sell can buy one. It becomes a shadow market. The company promoting this methodology would do the matching. Only time will tell if a real estate company will embrace the idea.