Buying
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Will A $300K Townhouse Be More Expensive In The City Or The County? |
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It sounds like a trick question, right? Will A $300K Townhouse Be More Expensive In The City Or The County? Certainly, my monthly payment for a $300K townhouse in the City will be the same as for a $300K townhouse in the County, right? Nope. The difference is the real estate tax rate... City of Harrisonburg = $0.93 per $100 of assessed value Rockingham County = $0.68 per $100 of assessed value As such, here's how the monthly mortgage payments break down if you financed 90% of the purchase price over 30 years with an interest rate of 6.25%... City of Harrisonburg = $1,958 Rockingham County = $1,895 So, they're close... but you'll pay approximately $63 per month more on your $300K City townhouse as compared to a townhouse at the same price point in the County. Or, annually, you'll pay about $750 more to live in the City than in the County. | |
Higher Mortgage Interest Rates Are Making Would Be Home Buyers More Thoughtful About Offers |
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Back when mortgage interest rates were 3% - 3.5%... 10:00 AM - new listing hits the market 10:10 AM - drive by 10:11 AM - text Realtor to set up showing 1:30 PM - walk through the house 1:55 PM - get kicked out by the next buyer in line to see it 2:30 PM - make an offer on the house (90% chance you'll make one) Home buyers didn't have to think very hard at all about whether to make an offer on a house they liked because their mortgage payment would be pretty darn low given historically low mortgage interest rates at the time. Now a days, with mortgage interest rates of 6% - 6.5%... 10:00 AM - new listing hits the market 12:15 PM - drive by 12:30 PM - text Realtor to set up showing (next day) 10:00 AM - walk through the house 4:00 PM - talk through the mortgage payment details with lender (next day) 9:00 AM - make an offer on the house (33% chance you'll make one) Buying a $350K house (for example) is a big decision! Buying a $350K house can seem like a smaller decision with 3.5% mortgage interest rates. It's only a $1600/month mortgage payment given a 20% down payment. Buying a $350K house can seem like a really big decision with 6.5% mortgage interest rates. It's a $2,115/month mortgage payment given a 20% down payment. As noted in the comparison above, buyers are still making decisions relatively quickly -- but they're thinking things through a bit further -- and they're not always choosing to make an offer. These higher mortgage interest rates do impact the market, even though they haven't caused home prices to drop in Harrisonburg and Rockingham County. | |
Home Sellers Still Are Not, For The Most Part, Accepting Home Sale Contingencies |
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As we make our way through the spring real estate market, plenty of folks are getting geared up to buy a home. Some of those would-be home buyers also need to sell their current home. No worries, right? We can just make an offer to buy contingent on you selling your home. Right? Right??? Maybe not. There still seem to be MANY, MANY more buyers in the market to buy than there are homes available for them to purchase. As such, home sellers are not, for the most part, accepting home sale contingencies. An offer with a home sale contingency technically means the seller has their house under contract -- but does it really matter? The sale won't head to closing unless some other house (your house) also goes under contract. If you are selling a home this year, I am likely going to tell you that you won't have to accept an offer with a home sale contingency. If you are buying a home, the same logic applies, a seller is unlikely to have to accept an offer with a home sale contingency. Case in point... there are 266 houses under contract right now in Harrisonburg and Rockingham County in the HRAR MLS. Of those...
* These are houses marked as "Pending" in the MLS ** These are houses marked as "Active with Kickout" in the MLS So... if you're looking to buy, and you need to sell, we need to talk through the logistics of how you can accomplish that in this competitive market where most other buyers are likely making offers on houses without home sale contingencies. | |
Make The Offer You Are Comfortable Making Even If You Suspect It Will Not Succeed |
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As a would-be buyer in a competitive seller's market you might find yourself thinking that you need to... [1] offer over asking price [2] include an escalation clause [3] waive an inspection contingency [4] waive an appraisal contingency Indeed, for some properties (in some price ranges in some locations) the only way to secure a contract to buy the home of your dreams is to do some or all of the above. But yet, I do encourage you to only make the an offer you are comfortable with... even if you suspect that offer will not succeed. If a hot new listing is priced at $400,000 and that seems like a reasonable price for the house... YES -- it is OK to offer $400,000 without an escalation clause, with an inspection contingency and with an appraisal contingency. Will that offer succeed? Quite possibly not -- especially if there are multiple offers. But... if that is the strongest offer you are comfortable making then that is the offer you should make. It won't necessarily lead to you securing a contract on the house -- but it might -- and if it does, you'll be under contract to buy with contract terms you are comfortable with. | |
The Amount You Are Comfortable Paying For Your Next Home Might Be Different Than The Amount Your Lender Would Let You Spend |
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So, you took my advice and talked to a mortgage lender to get a sense of what you are qualified to spend and to get a feel for potential mortgage payments. Great! You had been hoping to spend up to $350K on a house. But your lender said you could spend up to $475K on a house! But... when you look at the monthly mortgage payment associated with a $450K home purchase... WOW!!! How does your lender expect you to pay this much per month, and still have money for other life expenses, travel, emergency savings, etc.?!? This is not an uncommon place to be. Plenty of well qualified buyers discover that their lender will qualify them for a home purchase price that would involve a monthly mortgage payment much higher than is comfortable. So... start with a conversation with your lender about how high you *could* go on price... but be prepared to possibly need to do a bit more work with your lender to dial back that potential purchase price until you get to a monthly mortgage payment that is comfortable for you! | |
How Patient Are You Willing To Be To Get Into THAT Neighborhood? |
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There are some neighborhoods in the City of Harrisonburg and Rockingham County where it seems like homes NEVER come on the market. They are often GREAT neighborhoods for reasons related to the fact that there is very little turnover... homeowners stay in their homes for a long time, and wonderful relationships are built between neighbors over many years of living next door or down the street. So, if you decide you're interested in buying a home in THAT neighborhood.. where it seems like homes NEVER sell... you will likely have to decide how patient you are willing to be to get into that neighborhood. It may very well be worth the wait, but it might mean staying in your current home longer than you'd like (if you're local) or renting for longer than you'd like (if you're moving into the area). | |
Consider How Soon You Will Need To Replace These Items When Purchasing A Home |
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Many aspects of any home that you might purchase will likely never need to be replaced, for example... [1] the foundation [2] the wall framing [3] the plumbing Some items may need to be replaced at some point but when you choose to do so will be more elective than necessary... [1] flooring [2] interior paint [3] light fixtures But... some items will definitely need to be replaced at some point in your home's lifetime (or multiple times in your home's lifetime) and as such you should consider how soon they will need to be replaced when contemplating a home purchase. These "definitely will need to be replaced at some point" items are... [1] roof [2] heating and/or cooling system(s) [3] water heater [4] kitchen appliances If you're considering the purchase of a home that has recently had all four of those items replaced... great! Alternatively, if all of them are 30+ years old... not so great! Ask about the age of the main systems of the house you are purchasing... preferably before you are already under contract to buy it! | |
Why Are Housing Inventory Levels So Low In Harrisonburg And Rockingham County? |
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First, Harrisonburg is a popular place to live. Beyond everyone who is living here now, we continue to see new folks planning to make Harrisonburg their home, including but not limited to...
So, lots of people want to make Harrisonburg their home. Second, I think that more people are moving to Harrisonburg than new housing units are being built. If over a five year period, 5000 new people decided to make Harrisonburg their home, we wouldn't see a change in availability of housing if we also saw 5000 new housing units built. I think that the amount of new moving to (or attempting to move to) Harriosnburg over the past 5 to 10 years has exceeded the number of new housing units built during that same timeframe. Third, I think there is an imperfect match between what home buyers want to buy and new housing units that are being built. First of all, plenty of the new housing units that have been built over the past ten years have been rentals - apartments or otherwise - which hasn't helped provide housing for would be home buyers at all. Furthermore, the "for sale" housing that is being built in this area certainly meets the needs of some buyers, but probably not most or all buyers. If you're hoping to buy a home that is within the location, size parameters and price parameters of one of our area's new home communities -- great, you'll be in good shape! If what you are hoping to buy is not the type / size / price of new homes being built in our area, then the new housing units being built don't help you out at all. As such... the popularity of Harrisonburg and the rate at which new housing units are being built, and the type of housing units being built all contribute to a shortage of housing inventory for many price ranges and property types. | |
Higher Mortgage Interest Rates Might Be Resulting In More Buyer Competition In Moderate Price Ranges |
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Clearly, the Harrisonburg and Rockingham housing market is still quite competitive right now, especially for homes under $400K. One reason for this might be related to current mortgage interest rates! Higher mortgage interest rates result in higher monthly costs. If some home buyers were looking in the $400K - $500K range when mortgage interest rates were around 3%, they may very well now be looking in the $300K - $400K range now that mortgage interest rates are above 6%. After all, if you're financing 80%... $450K purchase at 3.25% mortgage interest rate = $2,011 per month $350K purchase at 6.25% mortgage interest rate = $2,070 per month Yikes! So, if $300K - $400K purchasers were previously only competing with eachother, they might now find themselves competing with buyers who were previously planning to spend up to $500K! That said, it is of course also true that some $300K - $400K purchasers might also have had to reduce the target price for their home purchase as well. | |
Buyers Should Choose Their Words Carefully When Talking About A House While Walking Through It |
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As a buyer, when you are walking through a home, keep in mind that the seller might be listening. These days, there are plenty of ways that a seller could be monitoring their home, with a security camera, or other recording device that could allow them to hear every word you are saying while you are in their house. So..... [1] Don't insult their house. It won't help during negotiations. [2] Don't discuss negotiations. You might be revealing your strategy. By the way, sellers, you'll need to disclose if there is a recording device in your home. There is a field in our local MLS specifically for this disclosure. | |
Detached Resale Home Sales Decline 39% In Two Years, Down To... Pre Covid Norm |
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First, a definition... Detached Resale Home Sales = not townhouses, not duplexes, not condos, not new homes Now, then, an observation... Detached Resale Home Sales have declined 39% over the past two years when looking at first 2.5 (ish) months of the year. Oops, wait, another observation... Detached Resale Home Sales have dropped all the way down to... pre covid norms. In the three years leading up to Covid (2017, 2018, 2019) we saw home sales between January 1 and March 13 totaling 99, 101 and 103 home sales for each of the above referenced years. But then, the three most recent years showed a very different pace of sales... Jan 1 - Mar 13 of 2020 = 136 sales! Jan 1 - Mar 13 of 2021 = 164 sales! Jan 1 - Mar 13 of 2022 = 136 sales! But, then, back to what seems to have been the pre-Covid norm... Jan 1 - Mar 13 of 2023 = wait for it... 100 sales So, two things seem to be true right now... There are significantly (!!!) fewer detached, resale homes selling right now compared to how many we saw during the same timeframe over the past three years. But, yet, the number of detached, resale homes selling right now is quite normal per the historical trends before Covid started messing with the housing market. Prospective home buyers in 2023 should thus realize that... [1] There will likely be a historically normal number of homes that you could buy this year... if we ignore the three most recent years. [2] There will be far fewer options of homes to buy this year compared to last year and the year before. [3] There may very well be more competition from other buyers for that smaller number of homes that will be available for purchase. As you can see through all of this -- the decline in home sales is very much due to a restrained supply (only so many sellers willing to sell) rather than a restrained demand (only so many buyers wanting to buy). | |
Home Buyers Who Bought Homes Two Years Ago Thought They Were Paying Crazy High Prices For Their Homes |
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I think those home buyers look at things a bit differently now. Three years ago the median sales price in Harrisonburg and Rockingham County was $222,150. One year later it had risen 11.5% to $247,700. Home buyers who were paying $247,700 thought they were paying WAY TOO MUCH for their homes. Why in the world did they need to pay 11.5% more than a similar buyer one year earlier!? My how those numbers look different today. Now, just two short years later, the median sales price has risen 22.9% (in two years) to $304,485. So, do you think those same home buyers who reluctantly paid $247,700 two years ago are upset for having paid 11.5% more than buyers were paying the previous year? Nope, not at all. They're delighted to have paid 22.9% less than buyers are paying today. Yes, this is an unusual time. I don't think we're going to see several more years of double digit annual increases in median sales prices. That said, I also don't think we're going to see home prices decline. So, while it can seem like today's home prices are high compared to home prices in the past -- your perspective might change a bit over the next few years when you're looking backwards at today's home prices. | |
How Likely Is It That We Will Find A House That Fits You Better Than This One In The Next 90 Days? |
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We will try to find you the perfect house to buy... that checks off all of the boxes on your list of needs and wants. If we happen upon a nearly perfect house... we should probably be asking ourselves... How Likely Is It That We Will Find A House That Fits You Better Than This One In The Next 90 Days? These days, with relatively low inventory levels in many price ranges and for many property types... ...and with quite a bit of buyer interest in most of those price ranges... ...we may very well conclude that we are NOT likely to find a house that is a better fit for you in the next 90 days. The moral to the story, I suppose, is that in a low inventory (few sellers) competitive (many buyers) market... you might need to settle for a nearly perfect house instead of a perfect house. That way, you might actually end up with... a house! | |
Balancing Optimism, Pessimism And Realism When Thinking About An Almost Perfect House |
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Yahoo! You have found an "almost perfect" house -- and you're thinking about making an offer. But... it's early spring (pre spring?) and there will be many more new listings coming on the market in the next few months, right? So... do you go ahead and make an offer on the almost perfect house now? Or do you wait to see what else hits the market that might be even more exciting!?? OPTIMISM tells us to wait for that perfect house. Don't compromise. There will be plenty of new options over the next 60 to 90 days. You won't want to miss out on the perfect house because you settled for an almost perfect house. PESSIMISM tells us that there probably won't be perfect houses, and if there are, there will be way too many buyers pursuing them, and your chances are low of winning a multiple offer scenario. REALISM tells us that (especially in the current fast moving, low inventory, real estate market) an almost perfect house is likely the perfect house to pursue. There are likely very few absolutely perfect houses, so if you have found one that is almost perfect, don't wait! It's tricky buying a home these days because you often can't compare one house to another, as the first will be under contract by the time the second house comes on the market. Thus, buyers often find themselves asking if "almost perfect" is perfect enough. | |
Thinking About Investment Properties Like Trees |
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A (not very well sourced) proverb goes something like this... "The best time to plant a tree was 30 years ago, and the second best time to plant a tree is now." And so it goes with purchasing investment properties. The best time to purchase an investment property was (certainly!) 30 years ago... or 20 years ago... or even 10 years ago! (or in this crazy market, even five years ago) The second best time to purchase an investment property is now. A bit of explanation and plenty of caveats are necessary here... I've had a variety of conversations with real estate investors over the past few months as they have considered various properties that have come on the market for sale. We have lamented (together) that prices have risen so much that it's harder to justify some investment property purchases with today's prices and today's interest rates. On multiple occasions, my clients have said commented that they wish they had bought an investment property (or two... or five) about 5 to 10 years ago. But, as we have reflected further, we have realized that there is not likely going to be a future time when conditions will be more favorable for an investment property purchase. Prices do not seem likely to decline significantly (if at all) and while interest rates may decline some over the next year or two they seem unlikely to decline significantly. As such, if you didn't buy an investment property (or properties) 10 or 20 years ago... but you want to own one in 10 or 20 years, perhaps today is the best time to do so. OK, OK, plenty of caveats... [1] Investment property values do not always increase over all periods of time. I'm not trying to tell you that they do. Investing (in real estate or otherwise) includes risk. [2] You still need to make sure the numbers work from a monthly cash flow perspective, etc. [3] I do recognize that if you buy a property as an investment property it might keep an owner occupant buyer out of the market for buying that same property. This observation is not me telling you that you should not buy the investment property - but just an acknowledgement that any purchasing decision has other follow on consequences. If you're hoping to buy an investment property in the next few years (or this year!) let's chat sooner rather than later to make sure you understand what numbers to expect -- from a purchase price perspective and from a rental income perspective. And then... let's go find you a tree to plant... I mean... an investment property to purchase! | |
March Is Right Around The Corner And Every Would Be Home Buyer Hopes It Means Lots Of New Listings Are Coming Soon! |
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Where are all of those houses for sale? Yes, I know, I know, they're already under contract. Plenty of homes are selling these days -- but because they go under contract so quickly -- there are rarely many on the market at any given time. But, March is coming! The spring market is often the busiest time of year for new listings, and we may start to see that surge of new listings coming at some point in March. And if not, April. While I'm thinking we will definitely see fewer resale homes hitting the market this year, we will likely start to see more of them coming on the market as we move through March and into April. So, if you're a hopeful home buyer, excited for whatever new listings might be coming on the market in March... or April... 1. Make sure you have an up to date lender letter. 2. Start tracking new listings to be amongst the first to know of new opportunities. 3. Get ready to jump on a new listing quickly -- seeing it quickly -- and then quickly deciding whether to make an offer. March is coming. Spring is coming. Hopefully, many more new listings are coming. | |
In A Multiple Offer Scenario, Consider Making The Strongest Offer You Are Comfortable Making |
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It seems we might still be finding ourselves in plenty of multiple offer scenarios this coming spring in the Harrisonburg and Rockingham County real estate market. And sometimes... a buyer discovers that the house they have just walked into is one that works very, very well, for their needs. What sort of an offer should that interest translate into? I recommend that buyers make the strongest offer that they are comfortable making. PRICE - If the house we just viewed is listed for $400K, and we believe it is worth $400K, perhaps we offer $400K. Or, perhaps we include an escalation clause to demonstrate a willingness to pay as much as $410K, or $425K, given that this property fits your needs (and wants) very, very well, like no other house has to date. INSPECTION - If you are comfortable making an offer without a home inspection, based on your level of risk tolerance, and the condition and age of the property, and your available resources for making improvements, then perhaps we make an offer without an inspection contingency. Or, perhaps you are not comfortable making an offer without an inspection contingency. RADON - If you are comfortable testing for radon after you purchase the home, and installing a radon mitigation system at that time if needed, then perhaps we make an offer without a radon test contingency. APPRAISAL - If, based on the size of your downpayment, a slightly low appraised value would not affect your financing, and if you are comfortable paying the offering price regardless of what value the appraiser determines through their appraisal process, then perhaps we make an offer without a specific appraisal contingency. As you can see here, if we are going to be competing with other buyers and offers, we need to make a strong offer, but only as strong as you are comfortable making given your financial picture, the particular property, how well the property suits you, your tolerance for risk, etc. | |
Real Estate Has Seemed Like An Abnormally Liquid Asset Over The Past Few Years |
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What is a liquid asset? Per Investopedia... "A liquid asset is an asset that can easily be converted into cash in a short amount of time." ...and further... "Liquid assets are often viewed as cash, and likewise may be called cash equivalents because the owner is confident the assets can easily be exchanged for cash at any time." ...and finally... "Generally, several factors must exist for a liquid asset to be considered liquid. It must be in an established, liquid market with a large number of readily available buyers. Ownership transfer must also be secure and easily facilitated." Real estate is generally understood to NOT be a liquid asset... as it can take time to sell real estate, the value for which a property will sell is not always certain, selling quickly to convert real estate to cash might result in a lower sales price, etc. But... over the past few years real estate has certainly SEEMED like a liquid asset for many property sellers. You want to sell your house? No problem. What to sell it quickly? We can make that happen. For an amazingly high price? Yep, that will happen too. So, while real estate was not (over the past few years) and is not (now) a liquid asset, it certainly seemed like it was to many property owners. Will this dynamic continue on into 2023 and 2024?
So, real estate -- which is definitely NOT a liquid asset -- might start to feel slightly less liquid over the next year or two based on the trends noted above. Or, maybe not. Maybe just about every home will continue to sell, without question, very quickly, at a very favorable price. The key takeaway here, as a buyer (or homeowner) is to remember that real estate is NOT a liquid asset. Don't buy a house today, paying any price, waiving all contingencies, if you might want to sell it again in 3, 6, 9 or 12 months. There are significant transactional costs of selling (and buying) a home and it is not a liquid asset - so it cannot always be quickly converted back into cash in your pocket. | |
Yes, More Houses Will Come On The Market For Sale In The Spring. Yes, More Buyers Will Be Competing For Them. |
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It's a common question at this time of year... Will more houses come on the market in the spring? There don't seem to be many options at all right now. Great news... There will be more homes coming on the market in the spring. The spring season is one of the most active times of the year for new listings of homes for sale to be coming on the market. But... Bad news... There will also likely be more buyers competing for each of those new listings, as the number of buyers shopping for homes also typically increases significantly in the spring. So... Yes, more houses will come on the market for sale in the spring AND yes, more buyers will be competing for them. :-) :-( I suppose though, that as a buyer, it's still nice to have more listings from which to choose from, even if you have more competition as well? Even with higher mortgage interest rates (relative to the past few years) and even with prices edging higher and higher -- it still seems that the coming spring season will be quite an active one in the Harrisonburg and Rockingham County real estate market. | |
Sometimes Housing Inventory Levels Are Not A Good Indication Of Housing Availability |
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Reflect with me for a moment on the definition of a paradox... paradox - a seemingly absurd or self-contradictory statement or proposition that when investigated or explained may prove to be well founded or true. Here's the paradox of the day... Sometimes Housing Inventory Levels Are Not A Good Indication Of Housing Availability Let's think it through together... Let's say you want to live in the infamous (and completely fictitious) "Riverside" neighborhood in Rockingham County. If you wanted to get a sense of whether it is possible to find housing in the Riverside neighborhood which method would you use? Method #1 for understanding housing availability... Look at how many homes are for sale in Riverside right at this very moment. There are currently zero homes for sale in Riverside, thus it is seemingly *impossible* to buy a home in Riverside, right? Method #2 for understanding housing availability... Look at how many homes have sold in Riverside during a particular timeframe, such as the past year. Oh, wait. There have been 15 home sales in Riverside over the past year. Thus, you likely will be able to buy a home in Riverside if you can wait for some new listings beyond what happens to be on the market at this very moment in time. As can be seen above, housing inventory levels were not a good indicator of housing availability in Riverside. -- Shifting gears a bit, let's consider whether housing inventory levels are a good indicator of housing availability in a real place, the City of Harrisonburg, but only examining homes priced under $300,000. Method #1 for understanding housing availability... Houses Currently For Sale in the City of Harrisonburg Under $300K = 5 houses Hmmm. Method #1 would lead us to believe that houses are not generally available in the City of Harrisonburg for less than $300,000. Method #2 for understanding housing availability... Houses Sold In The Past Year in the City of Harrisonburg Under $300K = 275 houses Wait a minute. There were 275 home sales under $300K in the City of Harrisonburg over the past year? That seems to point to a rather different conclusion about housing availability. -- And one more real example... Houses in Harrisonburg and Rockingham County combined priced under $200K: Currently Available Homes = 5 Sold Over The Past Year = 211 -- So... again... Sometimes Housing Inventory Levels Are Not A Good Indication Of Housing Availability Now, this does, of course, create the possibility that a would-be home buyer will simultaneously feel... 2. Encouraged... to know that there may very well be 270 more options in over the coming year. -- And one last point... If LOTS of homes sell each year in a particular location and/or price range but VERY FEW are available at any particular moment in time then two things would seem to be true... 1. Houses are generally available for purchase in this location and price range. 2. Demand for said houses likely exceeds supply, and if more such homes existed that could help bring more balance to that segment of the market. -- OK, fine, one more last point... If you are looking to buy a home in the coming year, yes, let's look at what's available now... but much more importantly, let's look at what has sold in the past year. The number of homes that have sold in the past year will likely be the best indicator of what to expect in the year to come. | |
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Scott Rogers
Funkhouser Real
Estate Group
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scott@funkhousergroup.com
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