Consider Renting in Today's Out-of-Control Real Estate Market

By Richard Montgomery

June 29, 2021 4 min read

Dear Monty: Is America in a housing bubble? We think today's out-of-control real estate market is crazy. We are attempting to downsize our lifestyle with a smaller home. In two instances, we made an offer, and someone outbid us. Our home is free and clear, so we are cash buyers. We don't want to sell until we know we've got a place to go. Unfortunately, there are not many homes to look at, so we don't want to sell our house first and end up compromising on our new home. Home trade-in programs and iBuyers are costly. What other options are available to us?

Monty's Answer: While no one knows for sure what will happen with our economy, including the housing sector, many economists are scratching their heads trying to understand the data to predict the future. Predicting outcomes is a big part of their work. Economists are sharing their thoughts and have very different views of the future. Economist John Mauldin warns of a coming tsunami. Another economist, Alan Blinder, recently explained our booming economy in The Wall Street Journal.

The Groundwork

One current solution is to buy a new home now and sell your existing home after. While the interest rate will be favorable, the risk is selling the old house. We have a strong seller's market today, and you may get a premium quickly. There are also hyperlocal pockets in most areas where a quick sale at a significant premium price is not likely. I wrote a column in 2012 on my website, Dear Monty, called "Should We Sell Our Home Before We Buy, or Buy Before We Sell?"

One More Solution

Sellers aren't selling because they are fearful they won't find a replacement they love due to a lack of inventory. Suppose someone would sell in this market at a premium, move twice and buy after the bubble bursts. In that case, it is conceivable they could save a significant amount of money.

According to the website Move, the average local household move costs $1,250. According to The Washington Post, home values plummeted over 30% following the 2008 meltdown. If this next bubble burst happens, and the value declines are similar, it is easy to see the savings with making two moves. Real estate agents will not like this option unless they are in the property management business.

This strategy makes sense, even if there is no bubble. Suppose the idea of a double move is palatable to you. In that case, the advantage of the strategy is that you will have realized your current equity before you make the next purchase.

Maybe I like the idea because I am in the process of doing it myself. I sold my big home a few months ago, and I am renting until I find a house I really like so I don't have to compromise.

Richard Montgomery is the author of "House Money: An Insider's Secrets to Saving Thousands When You Buy or Sell a Home." He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty or at DearMonty.com. Email him at [email protected]

Photo credit: GregoryButler at Pixabay

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