So you’ve read my post about buying property in a rising interest rate environment, and you’ve started implementing the spray and pray method of making low ball offers. Good job! We’re coming to the end of the latest real estate bull cycle, and I strongly believe we will go flat to down over the next several years.
Nobody should be in a hurry to buy property now, especially in hot markets like Denver, New York, San Francisco, San Diego, LA, Seattle, and Portland. It’s time to let income and wealth “catch up” to the ridiculous rise in property prices over the past several years.
Even if mortgage rates don’t go up after the Fed raises the Fed Funds rate, there is this fear across the country that mortgage rates might rise. For 2018, there is also concern that the new Republican tax plan may limit property tax deduction to $10,000 a year and cap the mortgage interest rate deduction to mortgage levels of $500,000 from $1,000,000. This will negatively impact expensive real estate markets in California, New York, New Jersey, and Connecticut.
THE BEST TIME OF THE YEAR TO BUY PROPERTY
Given you are in no rush to buy, you might as well wait for the best time of the year to buy property: December, January, and February.
Here are the reasons why these are the best three months to buy:
- Nobody Is Buying. November through January are prime holiday months. The last thing anybody wants to do during Thanksgiving, Hanukkah, Christmas, and New Year’s is to shop for a house. The weather is generally also the worst during this time of the year. Meanwhile, due to traditional company budget spending cycles, there’
re fewer job turnovers and relocations. Given these factors, your competition to find that perfect property goes way down.
- Desperate Sellers. Given we all know that the holidays are between November and January, the act of listing property during this time period indicates the seller is desperate. By waiting until February or March to list, a seller greatly increases the pool of potentials buyers. By listing between November and January, however, the seller may very well be shouting, “I can’t wait! I need your money now!” Thus, as a buyer, you have a much better chance of winning a lowball offer.
- See The Property At Its Worst. If you like the property during the middle of winter, then you should love the property during all the other seasons. Winter is when a property is subjected to the harshest conditions. You should test insulation, working pipes, the HVAC unit, the windows, and all sorts of things that get stressed during the winter. People have poor imaginations, which is why staging a home is big business. Your job as a buyer is to look beyond the shaggy green rug and discover the beautiful oak wood floors underneath.
BUT WHAT ABOUT A LACK OF SUPPLY?
As a buyer, know that there’s still a huge inventory of homes to choose from in November, December, and January. One quick look on Zillow, Trulia, or Redfin will show plenty of homes for sale. Are you telling me you can’t find one home in the map you’d find desirable? Of course you can!
I’ve often seen agents, who because they are anxious to get a listing, will convince sellers to list during the winter because there are fewer competing homes on the market. While I can see the merit in this selling point, over the past 20 years of observing the markets in San Francisco, New York, and Honolulu, it’s almost always the case that demand for homes in the Spring, Summer, and Fall has far outstripped the increase in new listings before and after winter.
Even if your home is amazing, listing it during the winter months may carry a stigma. Further, you won’t be able to attract families with children because most of the time these families only move during the summer.
The biggest knock to a property is that once it stays on the market for over 60 days it becomes “stale fish.” Stale fish properties lose their emotional connection with potential buyers as the buyers start wondering what is wrong with the property. When buyers no longer feel emotionally connected, they stop making offers.
The best time to buy property is also the worst time to sell.
Be A Real Estate Savvy Investor
Based on the data above, you can see empirical evidence showing January has the lowest median sales price at closing and stays on the market the longest = the best time to buy a home. February is also a great time to buy a house as well. Conversely, June is the worst month to buy a property due to its highest median sales price at closing and shortest days on market.
In addition to finding a home for sale during the depths of winter, you should also look for a sale due to a divorce, a job loss, or a liquidity crunch. You can find such information out by simply inquiring with the hungry real estate agent eager to make a sale. Be opportunistic and take advantage of desperate scenarios if the math works. As a prodigious wealth accumulator, this is your sacred duty!
Surgically invest in real estate: If you don’t want to constantly pay massive property taxes, don’t have the downpayment to buy property, or don’t want to tie up your liquidity in physical real estate, take a look at RealtyShares, one of the largest real estate crowdsourcing companies today. You can invest in deals around the country for as little as $5,000. It’s free to explore the various commercial and residential properties on their platform.
I personally sold my San Francisco rental home in June 2017 (the best month to sell according to the data) because it had gone up by 60% since 2012 and someone paid me ~30X my annual gross rent ($2,700,000 after buying it for $1,520,000 in 2005). To me, that’s an offer too good to pass up. I’ve used $510,000 of my proceeds to invest in heartland real estate that trades at a fraction of what I sold my house for via RealtyShares. As a result, I’ve reduced exposure while also increasing passive income.
Shop around for a mortgage: Check the latest mortgage rates online through LendingTree. They’ve got one of the largest networks of lenders that compete for your business. Your goal should be to get as many written offers as possible and then use the offers as leverage to get the lowest interest rate possible. Interest rates have finally started to tick higher post election.
Updated for 2018 and beyond.