Here is the best advice you can get on buying a home in 2021...
Wait until 2022. Let me explain why this is my advice. If afterwards you're still bound and determined to buy a house in 2021, I'll provide you a 3-step plan to put yourself in the best possible position to get a home.
Why Wait Until 2022?
Purchasing a home to live in as your primary residence is an incredibly large commitment. Over the years, I've assembled many helpful teachings on home buying. One of my main rules is not to resell a primary residence for at least five years, which means you're making a five-year commitment. Meanwhile, we are experiencing historic low inventory levels in America right now. Here are some numbers to demonstrate just how bad it is:
- Inventory level in 2006: 4 million properties available for sale.
- Inventory level in 2021: 1.4 million properties available for sale.
What makes this even more crazy is that there are more real estate agents than there are properties for sale. Furthermore, this 1.4 million includes all properties, including the luxury and higher end. And when we look at the inventory of properties for sale under $300,000, that statistic is just a tiny fraction of the total inventory. It's not just that there is a lack of inventory, there's a gigantic lack of inventory in affordable price points. So if you are trying to make a five-year commitment, you don't have a lot of options and that's why it makes sense to wait until 2022. Why will there be more options in 2022? Well, there were two key pieces of COVID related legislation which should lead to more inventory.
Eviction Moratorium: This legislation was proved unconstitutional by a federal judge recently, but it has had a dramatic impact on landlords across America. They haven't been able to evict their non-paying tenants for over a year now and plenty of landlords are counting down the days when they can finally get rid of that deadbeat tenant. Then they can fix the house up and sell the property. The upside of this is that many of these properties are more affordable because most landlords’ own properties at lower price points since those are the only ones that cash flow. So this could be encouraging if you're looking to buy.
We're hopeful that there will be some new inventory coming on the market once this expires. However, there is a massive backlog of eviction cases in the court system so it's going to take time. I'm predicting at least six months or more.
Foreclosure Moratorium: This is set to expire on September 30th; however foreclosures take a long time to process in most states. It can take up to a year or more for a foreclosure to finalize, so this wouldn’t impact inventory until mid to late 2022. It doesn't appear that there will be a flush of new inventory hitting the market though since recent statistics are showing that the percentage of past due borrowers is plummeting to almost pre-COVID levels. Many people are catching up on their mortgage or working out permanent loan modifications with their lenders. There are also several federal organizations that are putting pressure on loan servicers to exhaust every form of loss mitigation before considering foreclosure.
More Inventory in 2022
So this is not going to be a tsunami of foreclosures as some people are predicting, but it may bring some new inventory. It’s not going to flood the market and cause property values to plummet. Instead it will give friends, family and those that are looking to buy a home a few more options than there are right now. And if you're looking for a higher end property, you might have more options as we get into latter part of 2022. With little to no options right now in the housing market, it makes sense to wait until 2022 and see how these two pieces of legislation impact inventory. Remember, when you make a five-year commitment you need to choose wisely.
Why Buy in 2021?
Low Interest Rates: Some people want to buy now, and they have made the argument that interest rates are low and might not remain low. Of course, lower interest rates make a home a lot more affordable. I put a video together a couple of months ago called Housing Is Booming, Will It Bust? in which I discussed a lot of different factors, one being interest rates. For years people have been saying interest rates can't stay this low. But they have. So I don't know what's going to happen to interest rates, but you can't simply use the argument it won’t stay low forever. People have been using that argument since 2015 and the interest rates did stay low. However, low interest rates are a legitimate reason to buy now.
Rising Property Values: Another reason to buy now is if properties continue to appreciate. That could be the case and would mean it will be even less affordable to buy a year from now. But again, we're talking about a five-year commitment and you want to choose wisely.
Personal Reasons: Then there are personal reasons such as getting a job transfer or going through a major life change.
3-Step Game Plan for 2021
So if you're bound and determined to buy in 2021, here is a 3-step game plan to put yourself in the best possible position to get that home.
1 – Be Ready
Know What You Want: You need to know exactly what you're looking for. I put a video together almost a decade ago explaining this concept. This is hard for many people. A lot of people don't know what they want in life. If you want to get a house in 2021 and you want to get one that you like, you need to know what you like and what you don't.
The narrower your focus the better. You need to know exactly how many bedrooms, bathrooms, and garages you need. Where do you want to be located? How big of a yard do you want? Knowing exactly what you want means you can be laser focused and set up Zillow or Realtor.com notifications.
Pre-Qualify for a Loan: You also need to be ready financially. If you are going with a conventional loan as a typical home buyer, you need to get prequalified. The two largest loan providers are Quicken Loans and Wells Fargo. They do so much volume that their closing costs and loan fees are minimal. If you're going non-conventional, I have a video on the whole subject of non-QM for rental property, but it also applies to those potential homeowners that can't go conventional. So make sure you're dialed in on your money because when that deal comes, you need to act immediately.
2 – Act Instantly
It is crucial you act instantly. I mean, within a few minutes of getting the notification from Realtor.com or Zillow.com of the property that you know you're going to like, you need to go look at it. We’re talking within 30 minutes, and you might be way too late.
My assistant recently bought a property. I was on the phone with her when she said, "I'm hanging up. This is the property." She was there in 15 minutes. Now, she is licensed so she didn't have to coordinate with a buyer's agent and made an offer there on the spot. It was for more than the list price, and she got it. It was a decent deal. So it is possible, but she had to act instantly.
Buyers Agent: This also means that you need to have a buyer's agent. And that buyer's agent needs to be someone who lives by their phone 24/7. Because ultimately, you will need to get into that house within 10 to 20 minutes of it being listed. You need to act instantly, and you need a buyer's agent that when you text them and say, "Here's the one", they get in their car and meet you there in 20 minutes. That's how fast you need to move.
3 – Offer Aggressively
What is great for us right now as investors is all the multiple offer situations. We put a property on the market and get 15 to 20 offers. Our record in 2021 is over a hundred offers on one property! Now, how you can somewhat avoid that situation is by putting your best foot forward first. When that property is listed and you get there in 15 minutes and look at it, you then need to make the most aggressive offer you can.
Price: Now, when we talk about aggressiveness, we're talking about price of course. You would know how high you could go based on the pre-qualification.
Terms: You also need to be aggressive as it relates to terms. Things like having a short inspection period. Have a list of inspectors on speed dial and go down the list and see who can get there the fastest. Another aggressive term would be a larger escrow or deposit. Or making the closing date as short as possible, especially if you're preparing with the prequal and you know you can close quickly.
Avoid a Multiple Offer Situation: To go back to my assistant's example, she avoided a multiple offer situation by getting accepted before the onslaught of offers came in, which they did. The offers all came in the next day and that seller would've sold it for a lot more, but they agreed to my assistant's deal. It was within an hour of it being listed and she had the contract printed out and brought it with her. Follow these 3 steps and you put yourself in the best possible position to get a home in 2021.