For many, buying a house is one of the most financially significant purchases they will make.
Individual circumstances notwithstanding, becoming a homeowner can involve a lot of money upfront followed by years spent paying back the rest of the money required to attain the asset. Sure, there are folks out there who can purchase a house without taking on debt to do it, but that’s most certainly the exception, not the rule.
Finding a home can also be a time consuming process, frustrating process — especially when the market is hot.
I know this because it’s what we experienced while house hunting in spring 2021.
It’s been about seven months since we closed on and move into our house. And while buying one house in a hot market does not an expert make, I did learn a few things during the process which may (or may not) be useful to others who are in the process of house hunting.
Buying a house in a hot market
Much has been said about the state of the Canadian housing market over the last couple years.
While Canada’s two most expensive markets — Toronto and Vancouver — tend to dominate the discussion, reality is prices are up all across the country.
It makes sense. Supply and demand issues have been persistent. Lots of people are looking to buy, which is great for those looking to sell.
This isn’t expected to change in the immediate future. Shaun Cathcart, senior economist for the Canadian Real Estate Association, put it this way:
“Housing cycles can be very long, so market trends do not care that we’ve put new 2022 calendars up on our refrigerator doors. The fact is that the supply issues we faced going into 2020, which became much worse heading into 2021, are even tighter as we move into 2022.”
Cathcart noted interest rate hikes will make it harder on new entrants in the year to come.
“One wildcard will be what policymakers decide to do with the national mortgage stress test, which could act as a kind of cushion against rising rates for young and/or first-time buyers. It could also make things that much harder for them.”
Whether this is good or bad news very much depends on the side of the equation you’re on.
Four considerations for buying a house in a hot market
Although I’m far from an expert when it comes to real estate and real estate transactions, I can speak from the place of a person who recently bought a house in a hot market.
Based on our experience, there are four considerations I would offer someone looking to buy a house in a hot market.
Start looking at listings before you’re ready
If homeownership is something you want but you’re not ready to buy, do a little window shopping.
We weren’t in a position to buy until spring 2022, but we spent closer to two years looking at listings online. For us, there were two key benefits.
- It gave us an idea of what was available in our price range, and;
- It helped us determine what we wanted (and didn’t want) from a house.
Having a clear understanding of both these elements helped us when it came to working with our realtor. They used that information to sift through listings and send us ones that fit our selected criteria. As a result, when we received a listing from our realtor, we knew it was going to be within our budget and have the features we identified as important.
Looking at listings before you’re ready to buy helps you create a clear picture of what you want and what you can afford.
When you’re ready, quickly request viewings for anything that interests you
Emphasis on the words quickly.
When buying a house in a hot market, you have to move fast. If you find a listing you’re even remotely interested in, you’ll want to get a request to view it in as soon as possible. Waiting too long could leave you on the outside looking in.
When we were looking, it was not uncommon for a house to have multiple offers before the end of its first day on the market. So when we received listings from our realtor, we knew we had to decide quickly if we wanted to view it and prepare to rearrange our schedule to make it happen. Being completely at the mercy of a fast moving market would have been hard regardless, but it was even more challenging for us with a newborn. That being said, by moving quickly to view listings, we were able to submit offers on all but one of the houses we were interested in.
Know your budget and stick to it
If you’re buying a house in a hot market, odds are you’re going to end up overpaying. That makes knowing — and sticking to — your budget all the more important.
Why? Because as time goes by, it can be very tempting to make offers that are beyond what you can afford.
We certainly experienced while house hunting. The house we ended up buying was the fourth house we made an offer on. All our offers were above asking, but we were outbid every time. With the third house, we were ready to go to the very top of our budget…then we found out someone made an offer with a condition that it had to be accepted within 24-hours or it was void. We submitted a backup offer but it didn’t go anywhere.
And thank heavens it didn’t. The next house we looked at, the one we ended up getting, was almost $40K less than the top of our budget. In the end, we paid $1K over asking.
If you want to buy while the market is hot, you’re likely going to overpay. But knowing and sticking with your budget means at least you’ll be able to afford what you’re buying.
Consider a house that needs some work
I hesitated to include this as a consideration because…well, it can feel like settling for less. That’s probably because, in a way, it is: buying a house in a hot market usually means options are limited and buyers are at the mercy of sellers. While I’m sure it’s not impossible, finding a place in a reasonable price range that requires no repairs is tough.
Which is why it may be worth it to look at houses that need some work.
That’s what we ended up doing. We knew even before the inspection that the house we went on to buy would need some work. But when we viewed it, we saw a lot of potential. The inspection report identified some expensive repairs, but none were urgent. Some need to be done sooner than others, of course, but we can spread them out. And even though we’ll spend some money doing them, we’ll still be under our budget.
So as you’re deciding what’s important to you when it comes to buying a house, it may be worth it to consider your comfort level as far as repairs are concerned.
Bonus: If your realtor uses a portal system, check older listings. And don’t judge a listing by the photos.
This is how we ended up finding our house.
After our fourth offer was rejected, I decided to take a look through some of the past listings on our portal. Most were properties we had either viewed or passed on, but one house caught my attention. It had been on the market for 40 days — unheard of at the time. And the price had just been reduced.
I shared it with Jeff and even though the photos were just OK, we decided to request a viewing.
And boy, am I glad we did! The photos did not do the place justice at all. And even though we almost lost out due to an offer that came in literally as we were finishing ours, we ended up getting a great home in a lovely neighbourhood for less than we planned to spend.
Now, the obvious question is: why did it sit on the market for so long? I have a couple ideas. As mentioned, the house will need some work. Some of this work is minor or cosmetic (hello, orange carpet in the basement) while other projects will be expensive (the roof repairs). This plays into the second point: the initial listing price was a bit high for a place that was being sold as is, where is.
But as mentioned, our inspection repair didn’t flag any repairs as immediate. And even though homeownership has been both stressful and expensive at times, I am so glad we ended up going for it. It was absolutely the right move for our family.
I’m not sure if all realtors use a portal system to manage listings for clients but if yours does, I highly recommend checking older listings in the portal that fit your criteria. You never know what you’ll find.
Buying a house in a hot market can be challenging.
Unless you’re coming into the process with a lot of disposable cash, finding a home you like and can afford can be like hunting for a needle in a haystack…and then there’s the whole matter of putting in a successful offer. The considerations above won’t necessarily change the challenging nature of the market, but I do hope they are useful when it comes to think about how to approach the process.
Tell me: what are your “non-negotiables” when it comes to a house? Would you buy a house that requires repairs?