Money-Smart Tactics to Prosper in This Hot Housing Market

Is a bull market emerging in real estate? The National Association of Realtors recently reported that pending sales of existing homes are at their highest level in more than nine years. Sales of new homes are at a seven-year high. With new-home sales expected to climb 22% this year and another 23% next year, and existing-home sales likely up nearly 7% this year and another 6% in 2016, buyers and sellers may need to adjust their strategies to reflect the new reality, particularly in the hottest markets.

Demand is being fueled, especially among first-time home buyers, by strong job growth, high rents and relatively low mortgage interest rates, as well as more opportunities for low-down-payment mortgages. The supply of existing housing stock, while still reasonably balanced between sellers and buyers nationwide, is low by historical measures in a number of markets, and in some it’s downright ridiculous. Both Denver and Seattle, for example, have less than one month’s supply, compared with a national average of 5.1 months. Homes sell quickly in hot markets—in 25 days in Denver, compared with the national median of 40 days. In San Jose, Calif., houses are gone in just 18 days.

Prices reflect these imbalances. In some cities, prices are up by double-digit percentages, or close to it, compared with a year ago, says Clear Capital, a real estate data and analysis firm. Prices are up 12% in Seattle and Denver, 11% in Tampa, and 9% in Atlanta, Fresno and San Jose. The hot housing market could start to cool as prices reach affordability limits. Even NAR chief economist Lawrence Yun says that prices have risen at an “unhealthy and unsustainable pace.”

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But for now, sellers in sizzling markets face a Catch-22. You may get multiple offers and sell your home quickly for top dollar, even if your property is sold as is. But what will you buy? In Denver, agent Anthony Rael, with Re/Max, says that many prospective sellers are holding tight until they have more choices. Sellers should look at homes available in the price range and neighborhoods they desire before they list their current home. Rael encourages sellers to identify someplace to live temporarily in case they sell fast but don’t find their next home right away.

Even in a hot metro-area market, you must set your price appropriately or you risk hitting a snafu later. Although you may receive cash offers, the highest and best offer for your home may require financing, which necessitates an appraisal of the house’s market value. To protect yourself from an appraisal that falls short, stipulate in your contract that the buyer make up the difference in cash or split it with you.

On the buying side, identify your priorities and be open to alternative locations with the quality of schools or amenities you want. Let your agent know that you’re available to see a prospect as soon as it hits the local multiple listing service.

When you’re set to write an offer, be prepared to meet a seller’s need to close quickly. Or consider leasing back the home rent-free for a period of time if sellers are not quite ready to vacate. Include financing and inspection contingencies if you need them. But assure sellers that you are preapproved by a local lender and that you will use the inspection to identify major issues, not to nitpick them with a hundred small repairs.