317: How To Buy In A Hot Housing Market

Welcome to Money For the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today is episode 317, and it’s titled “How to buy in a hot housing market.”

First-time Austin Homebuyer

I recently got an email from a listener. He’s been listening about six months or so, has listened to well over 100 episodes of this show. He writes that he’s relatively new to investing. He’s been investing for three years now, as he graduated from college in 2017. He’s been saving for his first home purchase in Austin, Texas. He writes “The Austin housing market is very hot at the moment. Arguably, one of the hottest markets in the country, even with the recent effects of Covid-19.” He points out “The median sales price in Austin has increased over 11% since this time last year, and there are 45% fewer homes on the market now versus a year ago.”

He would like to buy a house in early 2021. But after seeing the market conditions, he’s worried that he might be entering the real estate market at the wrong time. He has heard of stories from realtors and homebuyers about individuals and families putting in offers of 10k–15k over the asking price for homes that aren’t even on the market yet, only to find out they did not win the bidding war.

In short, he continues, “I’m wondering if you could offer some general rules of thumb to look for as a first-time homebuyer in a hot market such as Austin. I’m conflicted because I don’t want to buy at the wrong time, and potentially lose value in my home only after a few short years. However, at the same time, if this market were to continue at this pace for several years to come, buying in the near future I think might be the right move.”

He points out he’s tired of handing over his money to landlords and would like to start building equity in a home, to diversify his current return drivers. 

U.S. Home Price and Sales Metrics

Austin is not the only hot housing market. There are a number of them. In fact, nationally in the U.S. housing is on fire. In August of 2020, there were 5.9 million homes sold on a seasonally-adjusted annual rate. That’s the highest number of homes since 2006, and it’s being driven because the average 30-year fixed-rate mortgage at the end of August was 2.94%. The median single-family home price in the U.S. is up 11.7% in the past year, ending August 2020. That’s the biggest annual increase since 2013.

Sales of newly-built homes were up 43% year over year, the highest increase since 1992. There have been about one million new homes built in the past year, the highest level since 2006. The market is being driven because of the low-interest rates, which is pushing up the value of all assets, plus there’s a desire for many, given Covid-19, to move out of their city, for example, out more in the suburbs or the country. So increased demand and reduced supply, because of concerns regarding the pandemic.

Some people don’t want potential buyers traipsing through their homes. Others don’t want to sell because they’re not sure they’ll be able to find something to buy. The frenzy to purchase homes has pushed up valuations. 

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