Is it a Volatile Market?

Question

I currently live on the seacoast in New Hampshire. Homes, multi-units, you name it, going for 40 or 50k above asking. I have been trying to buy a four-unit since I turned 18 about 2 and a half years ago. The market keeps getting crazier and I have a lot of money saved and pre-approved for what I would think is a pretty substantial amount but can't get anything. I was wondering if the market was like this all across the United States right now? Where are you guys from and how is the market there? Do we think the market could crash or is it starting to turn into a buyers market? I know interest rates are starting to go back up which is usually a sign of the market turning, at least that's what I've heard. I'm just trying to gauge what practiced real investors are thinking about the market right now.

Rheis Cloutier · Answer

@Michael K Gallagher I may have to look into those areas more, They are a bit out of the way for my current job but if it pays off I would only have to live there for a year!

Rheis Cloutier · Answer

@Greg Powers Thank you for the information! There was a lot in there that I hadn't considered and that's most of the reason why I came looking on here for advice. I know the basics of it but I really need to start looking into the nitty-gritty of it all and do my research. This really helped a lot! Thank you!

Rheis Cloutier · Answer

@Eddie Torres Sorry for the late reply, been very busy lately. I've been using a mortgage broker, and I keep touring places as soon as I can. I know everything comes in good time so I try to be patient. I was just curious to see what practiced investors thought of the market as of now.

Michael K Gallagher · Answer

@Rheis Cloutier still pretty hot here in central OH. I’m not super familiar with the sea coast of NH, I grew up in the upper valley. So perhaps you would have better luck going into some secondary markets in that area?  Lebanon NH, grafton NH, Hanover, might have some better luck in those areas. But yes overall still very hot here!

Greg Powers · Answer

I'm in a few national Facebook groups for Realtors and yes, the market is pretty crazy everywhere.  I've seen a few posts suggesting that agents are starting to see a shift in some markets, but I have the feeling it's more likely they're seeing the typical summertime lull and wishing it were a more substantive change.  But it's hard to define a shift unless you're looking backwards and reading trailing numbers (average days on market, list-price-to-sold-price ratio, etc.)--all you have is anecdotal evidence while you're in the midst of it.

Unlike 2008, the current market really is a product of supply and demand.  You could argue that there are larger (and darker) forces creating that demand by holding interest rates artificially low, but you can't argue that low interest rates bring lots of buyers into the market.  There are a few other forces boosting that demand as well, including ever-increasing rents (which lead people to become owners instead of renters), the ability to work remotely (which in NH has created an influx of people from more expensive neighboring states), etc.

On the supply side, inventory had been on a downward trend for at least the past three years, and the pandemic exacerbated the problem.  There was no Spring market last year, when we usually see a jump in inventory.  We did see it this year, but in the 3 counties where I do most of my business (Hillsborough, Rockingham, and Merrimack), the Median Days on Market since February has remained at about 6 days.  In other words, half of all houses are selling in less than a week.  What's most interesting to me, if you look at the chart below, is that even as inventory climbed this Spring and into Summer, the Average Days on Market dropped.

Those numbers are for single-family homes, and you're looking at multifamilies, but I could probably show similar stats for multis in NH.

Given that it's a supply-demand squeeze and not some distortion in the market (like easy credit), I only see two reasons the market will really shift: a decrease in demand, and an increase in supply.

The shortest route to decreased demand would be a rise in interest rates.  They might go up, but they could go up to 5% and still be at a historic low, so that should trim some demand but not erase it enough to cause a crash.  And if they start to rise, that frequently creates more demand as people who have been thinking about buying decide "It's now or never."  Also, if prices are pushed downward by a rise in rates, affordability is not affected too much in the long run.

Supply might also go up, but when every house that's listed is getting 10 offers, you could triple supply and still not satisfy all the demand, and I don't see that happening any time soon.

All of which is to say, I wouldn't wait around for a crash any time soon, and if there is one, you may have other problems to worry about.  I tell my buyers that it's not always about price--there are around 32 blanks on the NH Purchase & Sale Agreement, and only one of them is price.  Sometimes other terms you include, as well as the type of financing you're using, can win the day.  So make sure you're getting the best advice you can from your agent about how to get an offer accepted, and keep after it.

Eddie Torres · Answer

@Rheis Cloutier yes the market will change. History shows that it always has. But when and to what degree is the million dollar question. If we all knew the answer to that we'd all be able to strategically get rich. If you're ready to buy, just keep trying to buy. I know people that have been waiting for the market to go down so they can buy and they've been waiting for years. I personally don't understand that strategy. If you're looking to house hack by buying a multi unit building, generally a bank will count up to 75% of the potential rental income from the other units as income for you so you can qualify for a higher amount. If they're not doing that, consider working with a mortgage broken instead of a single bank since a broker works with multiple banks and has greater resources.

Rheis Cloutier · Answer

@Eddie Torres Right now what I’m approved for would be excellent for when the market is average. However with the market being so crazy, I can only offer so much over asking most of the time and usually I’m still outbid. When I first started looking I had a decent amount of money for an 18 year old fresh out of high school but the market was crazy enough to where I was only finding places that appeared to have no hidden value even if you were to fix it up. I want to do house hacking and I’m more than fine with being uncomfortable. The more uncomfortable you are, the more money you are making. I think they called it the Comfortability spectrum on the bigger pockets podcast. The ones I had been looking at two and a half years ago were not exactly what I was looking for to put it nicely. In really crappy parts of town and far away from where I was working at the time. Inconvenient in every way. Overtime with me getting a better job and everything the houses have gotten better but the market has gotten worse. I really am not too picky, at the time it just didn’t work for me. I’m mostly just curious if people think the market may change soon.

Eddie Torres · Answer

@Rheis Cloutier I live in Northern California and the market is still hot. I paid $75k over asking for my home a few months ago and I'm considered lucky. Over here $100-200k over asking is the norm. I think it's safe to assume that anything right now will be selling for over asking price. To what degree obviously depends on the area. That's where research obviously comes in. Are you making aggressive offers based on your market? Is your realtor experienced enough to know what it takes to win a bid in that area? 2 and a half years seems like kind of a long time. I know the market has been good for a while but that's a long time to not have any success.

Is it a Volatile Market?

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