How To Be Competitive In The Current Homebuying Market

This week, Maggie is chatting with Daryl Fairweather, the chief economist of Redfin. In this episode, they are talking about the current competitive housing market, how to navigate bidding wars, and more. If you’re planning on buying a home someday, this episode is for you.

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Daryl Fairweather is the chief economist of Redfin. Prior to joining Redfin she was a senior economist at Amazon working on problems related to employee engagement and managing a team of analysts. During the housing crisis, Daryl worked as a researcher at the Boston Fed studying why homeowners entered foreclosure. Daryl received her Bachelor’s of Science from the Massachusetts Institute of Technology and received her Ph.D. and Master’s degrees in economics at the University of Chicago where she specialized in behavioral economics.

To learn more about Maggie and her coaching and speaking services, visit www.maggiegermano.com.

The theme music is called Escaping Light by Aaron Sprinkle. The podcast artwork design is by Maggie’s dear husband, Dan Rader.


TRANSCRIPTION

Maggie Germano 0:05
Hi, and thanks for listening to the money circle podcast. I’m your host, Maggie Germano, and I’m a feminist and a financial writer, speaker, educator and coach for women. I’m passionate about making personal finance less scary and more approachable so that women can improve their relationship with money and take control of their finances. Every other week, I will interview an amazing, inspiring woman to talk about the issues that impact our money, our health, our independence, and more. We will touch on the societal and structural issues that we need to work together to change and the actions that we each have the power to take in our own lives. If you’d like to learn more about me and the work that I do, visit my website at Maggiegermano.com or follow me on Instagram @MaggieGermano. Thanks again for listening and I hope you enjoy.

Maggie Germano 0:55
Hey there, and thanks for listening. I’m your host Maggie Germano, and this week, I’m chatting with Daryl fairweather, the chief economist at Redfin. In this episode, we are talking about the current competitive housing market, how to navigate bidding wars and much more. If you’re planning on buying a home someday, especially right now, this episode is for you. Enjoy.

Maggie Germano 1:28
Okay, welcome, Daryl, thanks so much for being here today.

Daryl Fairweather 1:32
Thank you. Happy to be here.

Maggie Germano 1:34
Great. So why don’t we start off by having you tell us a little bit about who you are and what you do.

Daryl Fairweather 1:42
I am the chief economist at Redfin, which is a real estate brokerage. As the chief economist, I study the housing market, I look for trends, try to identify what it’s like out there for a buyer and a seller while also predicting things like prices and sales. And I also just dig into how the housing market interacts with the economy as a whole.

Maggie Germano 2:04
That’s great. And that must be exciting right now with how the housing market has been.

Daryl Fairweather 2:10
Yes, the housing market has just been on a rollercoaster ride, pretty much since the start of the pandemic, but maybe it started before then.

Maggie Germano 2:19
Yeah, definitely. And how did you find yourself in this line of work not only as an economist, but also just in the real estate space?

Daryl Fairweather 2:30
Well, I have I have a PhD in economics, from the University of Chicago, I previously worked for Amazon working on issues related to employee engagement. I’m a behavioral economist by training. So every CIO that role related to behavioral economics. But interestingly, housing also has a lot of behavioral economics in it, it’s the biggest decision, financial decision many people will make in their entire lives, but they don’t have any practice with it. They don’t know what traps to look out for. So again, part of my job is informing home buyers and home sellers about how to go about the process from an economic perspective.

Maggie Germano 3:08
That’s great. Because yeah, like you said, I mean, it’s a massive financial decision, a massive personal decision. And we have what’s not like we get a home buying class in school, we just kind of have to fall into it.

Daryl Fairweather 3:23
Right. Yes. So people learn from their parents, and everybody even has parents who have been homeowners.

Maggie Germano 3:28
Yeah, absolutely. And so what kinds of trends are you seeing in the home buying market right now?

Daryl Fairweather 3:36
Well, the home buying market is in flux. At the beginning of this year, everybody was rushing to buy a home, while mortgage rates are still low. But now mortgage rates have gone up. They’re, you know, four and a half percent right now, while they were below 3%, at the end of last year. So it’s a very large increase and adds a lot to the cost of the home. So I think that should slow down demand, I think people will get priced out of the housing market because of that increase in mortgage rates, which will slow down competition, probably later this year. So it’s the market is turning again, like it’s another swing on this roller coaster ride we’ve been on. But since we’ve never been here before, like had this exact situation before with this kind of economy before. I am very humbled by making any kind of predictions.

Maggie Germano 4:24
Yeah, no, I totally get that because like you said, it’s been it’s been a roller coaster, especially with COVID. And people kind of leaving cities and wanting their own space and having that competition really go up. And so you said we’ve never really kind of been in this position before. What are some of the things that have been going on in the last two years in the home buying market, they are basically brand new to you?

Daryl Fairweather 4:52
Well, the the normalization of remote work really changed places that people wanted to buy homes, we saw an increase in migration that used to be that around 26% of people were on people on Redfin with searches on Redfin, were looking for a home outside of their metro area. And now it’s up to 31%. So that is a pretty big increase, and also just is a reflection and how people are reevaluating their lives. And that shows up in the housing market in a lot of different ways. But beyond just migration, people wanting larger homes, because maybe they’re working at home, people looking for different things out of a neighborhood, just because COVID giving them a different perspective on what’s important to them, people may be moving back to be close to family, because I can COVID Just put a different perspective on that. So I think the pandemic has caused people to reevaluate their lives. And that often comes with not just a move, like in the career or personal but also physically moving into a different place, which would result in someone buying a home.

Maggie Germano 5:54
Yeah, and in my own personal experience, that is exactly what happened. I used to live right outside Washington, DC. And with the pandemic, and I also had a baby, my husband and I were like, We need to be in a space where we’re like, closer to family have more of a support system. And so we moved back to my hometown that I when I left was like, I will never live there again. And as you can see behind me, there’s tons of snow on the ground still. And it’s almost April. And that’s one of the main reasons I was like, I’m never moving there. But with the pandemic and with I’m I’m self employed, so I can work wherever and my husband’s job was pretty much remote because they shut their office down. And so we were like, Let’s do it, let’s move to be close to my entire immediate family is here. So we have a lot more support than we would have otherwise. And the cost of living is much lower. So we were able to get more home and more property than we were able to in DC. So yeah, just even in my own experience.

Daryl Fairweather 6:57
We had this happen to me, too. I was living in Seattle working at the Redfin headquarters before the pandemic hit, and then a year and we decided to move to Wisconsin, which is where my husband is from, we moved to his hometown, to be close to his in laws. And even eventually, my mom moved out here to so we have like all the elbow a lot more family here. Yeah, and I never would have done that had it not been for the normalization of remote work, which is pretty wild, because I feel like it’s been a very positive decision for me. And it just shows it goes to show how like how strong the status quo bias can be. Because maybe there are a lot of people who would have benefited from a move. And they only did it because of Yeah, the pandemic.

Maggie Germano 7:41
Yeah, it’s really interesting to think about that. And I know that when I moved, and I think so I’m in Syracuse, New York. And apparently, the real estate options or inventory basically have always been a little competitive. So you’re often paying over asking, because there’s just more people looking than there are houses a lot of the times. But with the pandemic and the housing market really kind of exploding, it got much more difficult. And we were surprised at how much we ended up having to pay for a house up here, even though it was much less than we would have in Maryland, it still was more than we were kind of expecting because of all the competition and having to waive different contingencies and offer way over asking even though there were things that were wrong with the house and things like that. And I’m still seeing that with friends who are looking to buy a house right now I have friends who are still in DC they were offering like 200,000 over list price. So even though things might change in the housing market, and over the course of the year, what kinds of tips do you have for folks out there who might be navigating bidding wars.

Daryl Fairweather 8:59
So my best advice is, really think ahead of time about what it is that you want, and how much you’re willing to pay for it. Because once you get into a bidding war situation, it’s easy to let emotions take control or the desire to win take over. So you want to set those parameters of what it is you want, and how high you’re willing to go before you even enter into that bidding war. So you just can go by those rules and not really have to think too much about it. And that that requires that requires doing research ahead of time looking at the market, understanding how much homes are going for what what kinds of offers when whether it’s offers that are above asking price or waiving inspection contingencies or things like that. And then just let this be okay with it if you lose, I mean, you don’t want to be a situation where you’re regretting it that you didn’t like bid $10,000 Higher. We wouldn’t regret it if you knew for a fact that you could not afford that extra $10,000. So, thinking through those hard questions And I think is the most important thing to do and do it before even really get started?

Maggie Germano 10:05
Yeah, now that’s really good advice. Because I mean, I’ve definitely seen a friends of mine who are, they’re kind of getting fatigued from the process of, of bidding and losing and bidding and losing. And so they’re, you know, kind of going over board in terms of what they can afford and what they feel comfortable with just to kind of get the house even if it’s not the house that they actually want. And I feel like I’ve had to have some conversations with friends of like, kind of walking them back a little bit in terms of like, Is this even where you want to be? Is this the house that you actually want? What you know, what would you have to sacrifice if you had to get a mortgage you could barely afford and just really, like actually thinking about those things, instead of just the stress in the moment of continuing to lose bids?

Daryl Fairweather 10:55
Yes, yes, I think you can avoid some exhaustion if you just kind of approach it like an algorithm like you decide ahead of time, what you’re going to be willing to pay, and then just execute on that on that algorithm. But I think it does just become exhausting even just to go and see every home week after week, and know that there’s like maybe a low probability that you’re going to win it. But things like I said, things are changing. Now, with mortgage rates increasing, I would expect the competition to start to ease a bit in those situations to be less common that I think I think a couple of months from now, many people will find that the first offer they put in will be the one that gets accepted. So that’s just a prediction.

Maggie Germano 11:34
Yeah, who knows that could change, right. But that’s good to hear at least. And so for folks out there who may be like me, or maybe like other friends of mine, who did find a house and kind of found themselves buying homes that were a little bit more expensive than they had planned? What kind of recommendations would you have for them.

Daryl Fairweather 11:57
It’s always important to take care of maintenance early instead of letting it result in a big expense. So like if you if there’s a little leak in the roof, you want to get that patch before it becomes a big leak that needs a lot more work done on it. So just being financially prudent, I guess about that kind of stuff like maintenance. And then if you’re looking for other ways to make money off of your home, you could any like say you want to go on a vacation and you’re worried you can’t afford the vacation because you spent so much on your home, you might want to Airbnb out your home while you’re on that vacation. Because now that you’re a homeowner, you can you could theoretically make money off of that homeownership. So that’d be my advice.

Maggie Germano 12:41
Yeah, so getting strategic and creative with making a little bit extra money making your home kind of work for you.

Daryl Fairweather 12:51
Yeah, that’s definitely an option for people who feel like they maybe bit off more than they can chew, or they would just like an extra bit of cushion, because they are having to pay a higher mortgage.

Maggie Germano 13:04
Yeah, absolutely. And so how, how are the like the skyrocketing housing costs, and like you were saying that competition. And even you had said something earlier about how competition might go down, because people are going to start getting priced out overall, how is that all of that together, affecting kind of the already existing racial and equalities and affordability within the real estate market?

Daryl Fairweather 13:35
It exacerbates it. And because prices are going up and mortgage rates are going up, it moves the goalposts on what you need to achieve in order to become a homeowner. And some people can just reach into their savings and make up the difference. And it’s not a big deal for them. But for many people, they are on a strict budget. And if home prices go up, they’re simply priced out or if mortgage rates go up, they’re simply priced out. And just because of the way inequality works in this country, black people are less likely to be able to have like family members who can help them out with down payments or to be able to inherit a home because their parents were less likely to be homeowners themselves. So homeownership becoming less attainable is bad for anybody who is priced out and black people are more likely to be in that category.

Maggie Germano 14:23
Yeah, absolutely. And what do you recommend to folks of color who hope to be homeowners either right now or eventually and are kind of navigating all of this?

Daryl Fairweather 14:36
the more flexible you can be the better chance you’ll have of getting into homeownership. So maybe rethinking the neighborhood that you would want to be in or even the city or now there’s a really tight labor market and with remote work, there might be more job opportunities. So now might be a good time to move somewhere where homeownership is more attainable, or going for like a townhome instead of a single family home that can save some money and get your foot in the door. In terms of homeownership, also because the market is becoming less competitive, I think now is a good time to explore some, some types of some paths to homeownership that might not have succeeded, even just even just a year ago might have a better chance of succeeding now, so like getting an FHA loan, or or other downpayment assistance programs, I think those kinds of offers will be accepted nowadays before people might have only gotten cash offers, but as offers become less of a given people will be willing to take any kind of offer they get.

Maggie Germano 15:35
That’s good to hear. Because that’s definitely been something that I’ve been thinking about where it’s like there were downpayment assistance programs, there were other loans that would help folks who didn’t like just have a ton of cash on hand, and offers that were going for cash only, or, you know, waiting appraisal, and all that I was just thinking, I mean, there’s no way that we would have been able to buy a house in cash, first of all, but also, you know, waiving the risk of waiving appraisal, and then having there be this massive gap. And so I’ve just been thinking about that with folks who just even historically, or, you know, in their own families had not had access to buying homes, and then just adding this huge burden on top of it.

Daryl Fairweather 16:21
Yeah it’s been, it’s been really tough out there for homebuyers. I mean, some people have found success even under these conditions, like you can look for homes that have been sitting on the market as an opportunity to get that kind of offer accepted. But it’s been tough because a lack of inventory.

Maggie Germano 16:37
Yeah, absolutely. And so is there anything else? Whether it’s, you know, just navigating the this current home buying market, or just home buying in general, that you want to make sure folks take away and just know from our conversation today?

Daryl Fairweather 16:58
I think the most important takeaway for people is that to know that mortgage rates have gone up, and that will make borrowing more expensive. And that should have some consequences on the dynamics of the market buyers will have to pay more to get a home. So that means that some will be priced out and demand should go down. And sellers over time are going to have to work harder or price more competitively in order to guarantee an offer.

Maggie Germano 17:25
Yeah, so there’s hope, at least in terms of being able to get a house even if that means that your mortgage might be a little bit more expensive because of the interest rates right now. Great. Well, that’s, that’s really helpful. And I know that like for myself watching the way that the housing market has been, and just thinking about, like, how long this could possibly at last and what that’s going to be I know, I was worried about there being like a potential bubble burst that we’ve kind of seen in the past. Is that something that you anticipate or is it more that things are just gonna kind of slowly trickle down and go back to normal?

Daryl Fairweather 18:06
The market is really nothing like it was back during the bubble. I mean, that was there was so much financialization of housing back then, and shady loan products, predatory lending, we don’t really have any of those things happening right now. So it’s really not comparable. But I think it’s possible that the housing market will slow down and prices may not keep up with inflation, but that’s very different than a bubble bursting.

Maggie Germano 18:29
That’s good to hear. That’s a little less scary, at least. Great. Well, thank you so much for sharing your expertise today. Is there anything you have going on or anything that’s going on over at Redfin that you want to make sure listeners know about?

Daryl Fairweather 18:46
We just added a rental to the website. So we have both those products and you can see just in one place on our website, whether you whether renting or homeownership is what you want to go with, so go check that out.

Maggie Germano 19:00
Great, and how can folks learn more about you and Redfin?

Daryl Fairweather 19:05
You can follow me on Twitter @fairweatherPhD. And you can also read the research that my team puts out on the Redfin news site, you can just Google redfin news.

Maggie Germano 19:15
Great and I will link to all that in the show notes as well. So folks have easy access. Thanks again for being here and sharing your expertise today.

Daryl Fairweather 19:25
Thank you for having me.

Maggie Germano 19:29
Thanks again for listening to the money circle podcast. If you want to learn more about my financial coaching services, my speaking and workshop offerings, or just to read my blog visit Maggiegermano.com. To get in touch with me directly email me at [email protected] You can also follow me on Instagram and Twitter @MaggieGermano. I look forward to hearing from you. Bye bye