Question: I’ve heard so much about how crazy the housing market is right now. Is this the right time to downsize?
Answer by Yien: That is a great question. We are currently helping several clients downsize because their children have grown and left the home. They want to take advantage of the current strong seller’s market and cash out. Even though we’ve helped families do this for over 20 years, this market still has a few surprises because no two markets are ever the same. Let me share with you some background.
Currently, the market is so strong, that we are filtering multiple offers for our listings so the sellers can pick the best ones. We are also writing multiple offers for our buyers hoping they can secure a contract. This high demand for houses feels eerily similar to the runup before the 2008 market crash. However, the nature of the demand is fundamentally different this time. Last time, the easy financing and rampant speculation fueled an inflated “fake” demand. Many people bought houses not because they needed to live in them, but with the sole intention of flipping them for a profit, while using borrowed money they could not support. This time, the demand for housing is due to the post-COVID influx of people moving to Central Florida (and elsewhere in Florida), for a variety of reasons, not the least of which is the technological revolution of remote working which allows people to keep their jobs but move to a more desirable place to live. This influx of people needing places to live resulted in rental properties being fully occupied. Renters often even have to bid higher than the asking rent on available properties! Those who wish to purchase, find themselves competing with others like them, plus investors looking to invest in this strong rental market for cash flow. Together, it makes for the most competitive entry-level market in memory. Currently, the median price for a home in Orlando is $361,000 while the average price is $410,169. That’s up 26.7% from the median price of $285,000 a year ago, and up 18.2% from the average price of $347,119 a year ago. This has created a myriad of issues for many buyers. But it also presented opportunities for sellers. Many families found their homes are now worth much more than they expected. This unexpected equity, plus a still-low mortgage interest rate, is allowing them to trade up. The demand for larger, higher-priced homes is strong too, but in a different way. If the home is above $400k-$500k, the investors are likely not a competitor, since cash flow is easier on smaller and lower-priced homes. Now the competition is from other families looking to move to Orlando. We’ve had a steady flow of buyers from the northeastern states. We are now also seeing an increase in buyers from the west coast, California in particular. California buyers often purchase with cash and are willing and able to compete for some rare homes among the low inventory. I’ve personally seen $50,000 – $100,000 above the asking price. This makes it difficult for other financed buyers to compete because the prices are beyond the limit of appraisals. One caveat, is these high-end buyers tend to be very selective and would bid thus only on the best homes with rare features such as golf or lake frontage. So this price escalation does not directly affect the overall market. They result in various price outliers that are not necessarily replicable on other less-premium homes.
So, when you are selling your current larger home, you have the advantage and opportunity to get the highest price that we’ve seen since the last peak. But when you are buying the smaller next home, you are in a more competitive market segment. You might find yourself paying more than you were planning.
It suffices to say that there are many moving pieces in this market. Whether you are looking to buy or sell, let us be your partners and guides. We have insights, strategies, and connections that can increase your odds of success in this market. We hope to hear from you!
As always, please send us your questions. Until next month, take care!
Yien and The Yao Team
