When the economy experiences certain things, it leads to a seller’s market. During this time, people often wonder whether they should rent vs buy a home.
Rent Vs Buy
Which is the right option? Are you trying to determine the answer to this question? If so, we’re here to help you understand what your options are during a seller’s market.
Read this guide to learn more about a seller’s market and its effects on the decision to buy or rent a home.
The Characteristics of a Seller’s Market
If you’re asking, “should I rent or buy a home in a seller’s market?”, you might want to begin by learning more about a seller’s market. To understand what this is, you might want to know the top characteristics of a seller’s market.
Here are the main four characteristics of a seller’s market:
1. Low Inventory of Homes for Sale
When the real estate industry is experiencing a seller’s market, you will see a low number of homes for sale. Decreased inventory with homes for sale is a normal trait of a seller’s market.
Find out what the current level of inventory is for Seattle: Seattle Housing Market Report
Current level of inventory for Snohomish County: Snohomish County Housing Market Report
2. Rising Home Prices
The low number of homes for sale leads to the next characteristic of a seller’s market – rising prices. Home prices rise as inventory decreases, mainly from the principle of supply and demand.
You’ll probably pay a higher price for a home during this time than you would during a buyer’s market.
3. Competition With Other Buyers
The other common trait of a seller’s market is increased competition. Buyers must compete to find homes to buy. You can expect bidding wars to occur in some cases and multiple offers on every home listed for sale
4. There Must Be Buyers
In order for it to be a Sellers Market there needs to be buyers that are creating the demand. Often times this will be fueled by lower interest rates.
Buyers will need available funds in order to purchase a house and the lower the interest rates the more people that qualify.
Lower interest rates = increased buying power. Meaning that with lower interest rates people can afford more house.
The Challenges of Buying a Home During a Seller’s Market
When deciding to rent vs buy a home, you might want to consider the following challenges that you might face when shopping for a home during a seller’s market:
Homes Sell Right Away
One challenge you might face when looking for a home to buy is finding homes for sale. Homes can sell within minutes of their listings during a seller’s market.
Even if a the listing has an offer review date, the seller has the right to accept an offer at any time.
As a result, it becomes difficult to find a home to buy. You might have to settle for a home that isn’t exactly what you want, or you might have to put an offer in immediately when you see a new home listing.
Few Homes in Your Price Range
Because homes sell so quickly, you might face the challenge of finding homes in your price range. As a result, you might have to spend more on a house than you had planned to spend.
Problems Negotiating on Home Repairs
There is so much competition during a seller’s market that you might have trouble negotiating on home repairs.
If a seller doesn’t want to make the repairs you want, they might look for a different buyer who doesn’t care if they make the repairs.
To find a house during a seller’s market, you’ll need to hire a good real estate agent. You’ll need an agent that knows the area and market and one that is aggressive and experienced.
Make sure you check out our post on How Buyers Can Get The Best Deals on a home in a Sellers Market.
The Effects of a Seller’s Market on Rental Properties
Now that we’ve discussed a lot of details about buying a house during a seller’s market, you might wonder about renting a place to live.
While you can always find apartments and homes to rent, the inventory on these is often lower, too. When there are few homes to buy, people might be forced to rent places instead.
As this occurs, it can also create a shortage of rental properties. Just like with buying a house a shortage of rental units will generally drive up the rental rates.
The median rent in Seattle was $1,375 in 2010, and by 2020 the median rent was $1,998, a 45% increase over the decade. ProperyClub
According to RentData.org the average rental rate for a 3 bedroom in King County is $2,694. A quick search on Trulia for 3 bedroom single family homes for rent in Seattle saw rates from $2,100 – $8,500 month.
You might need to contact a property management company to help you find a good rental unit.
Should you rent or buy a home? As you can see, you might face challenges with both options, but buying a home is usually the better choice in the long run.
Why Homeowners Decide to Sell During a Seller’s Market
It’s interesting to know that many homeowners will decide to sell their houses during a seller’s market even though they weren’t planning on it.
When homeowners see the prices of homes increasing, many will opt to sell their homes to make more money on the sales. If you own a house and can sell for a higher price right now, why not sell?
The only downside to selling during a seller’s market is that you might have trouble finding a different home to buy. You might also have to pay a higher price when you do find a house you want to purchase.
If you can sell your house and make a large profit, you could always rent a place to live for a while until the market cools off.
Rent vs Buy: Factors to Consider When Deciding
So, if it’s a seller’s market, do you rent or buy? Which is the better choice for you? For some people, the better choice might be to rent. For others, though, it might be to buy a house.
You can decide which is better for you by evaluating the information you have learned here. You can also decide by meeting with a real estate agent.
If you’re thinking about buying a house, ask an agent to show you some properties to see what you think. You might end up finding the perfect home for you and your family!
Reasons To Consider Buying
MISSING OUT ON HOME EQUITY
King County real estate has appreciated at an average of 6.71% during the past 59 years.
STABLE MONTHLY PAYMENTS
As long as you choose a fixed 30 or 15 year mortgage your payments will never change unless you choose to refinance.
ON AVERAGE AFTER 5 YEARS BUYING A HOME IS CHEAPER THAN RENTING
If you compare purchasing a $750,000 single family residence with $0 down vs renting a house for $3,000 a month… Buying average net costs $3,305/mo. Renting average net costs $3,387/mo.
If you stay in your home for 5 years, buying is the cheaper option. You will save $4,926, an average of $82/month.
YOU ARE IN CHARGE
If you want to paint your house neon green you can. You can own as many dogs as is healthy. You change your landscaping and plant a monkey tree in your front yard.
Reasons To Consider Renting
Rent Payments Are Usually Lower
A mortgage payment for a $750,000 house with $0 down will be roughly $3,859.88 per month. In Seattle that would get you a 3 or 4 bedroom 1,600 sq ft single family residential.
You can rent a similar single family residential for about $3,500 per month.
It is much easier to find a rental home and you are usually only obligated to a 1 year lease. Once your lease is up you can move whenever you need to.
Buying and selling a home requires more paperwork and generally will take longer to find a home you like then get it through closing and put your home on the market get it sold and get it through escrow.
No or Low Maintanance Costs
When you are renting you are generally not responsible for things breaking. If there is a leak in the roof call the landlord, the dishwasher stops working call the landlord, the sewer line is leaking… you get it, call the landlord.
Low Upfront Costs
Moving into a rental home will usually only cost you the first and last months of rent and a security deposit equal to a months rent. In our example above that would be approximately $10,500.
While it is possible to purchase a home with $0 down and find a seller that would assume your closing costs that is near impossible to do during a sellers market. Even if you do use a $0 down loan you have to pay for closing costs which would be approximately $22,500 for our example above.
Seek Help From a Real Estate Agent
There are so many things for you to think about as you compare your options, and you should carefully think this through. Choosing whether to rent vs. buy is a big decision that you shouldn’t take lightly.
If you’re ready to seek help with your decision, contact the Madrona Group. We can schedule a time to chat and discuss what it would look like to purchase a house and see if that is in your best interest.