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Kristine Hayes

WHEN I PURCHASED a house in Portland, Oregon, in 2018 for $375,000, my plan was to stay in it for four years. By 2022, if everything went according to schedule, I’d be set to retire from my fulltime job. Then I’d sell the house, and my husband and I would move to Arizona, where we’d purchased a second home in 2019.

Conventional wisdom suggests that homeowners should plan on remaining put for at least five to seven years to come out ahead on a home purchase. But as I can attest, there’s been nothing conventional about the real estate market over the past 18 months.

For the first two years I owned the house, it appreciated at just over 2% annually. By August 2020, Zillow estimated my home was worth $400,000. I began to think that, even after paying a real estate agent’s commission and other costs, I might recoup my $80,000 down payment when I sold.

Then, at the start of 2021, home prices in our neighborhood began shooting up. Houses weren’t necessarily being listed at higher prices, but buyers were frequently bidding more than the asking price. It wasn’t unusual to look online and discover a home had sold for $15,000 or $20,000 above what it had been listed for.

Small, modest homes that might be considered ideal for first-time buyers were selling faster than I’d ever seen. A place might go on the market on a Thursday and have a “sale pending” sign outside by Sunday.

The trend continued, and even strengthened, through the summer of 2021. By then, news reports said that low mortgage rates—coupled with an ample supply of young, first-time buyers—were causing the housing market to explode. Record low inventory of available homes only added to the frenzy.

Result: Home prices have been soaring across the U.S. The S&P CoreLogic Case-Shiller U.S. National Home Price Index jumped 18.8% in 2021, with the Portland market up 17.9%.

When my mom’s house sold in August 2021, it went for $63,000 over her $500,000 asking price. Her place, similar in size and location to mine, made me think that my asking price should be far higher than the $400,000 I’d been contemplating.

My original plan was to sell the home once we’d already moved to Arizona. That would mean putting the house on the market in June 2022. But as 2021 drew to a close, I began to wonder if getting the house sold sooner would make more sense.

Why? The news feed on my phone was filled with articles warning of impending mortgage rate hikes. Other stories mentioned a potential wave of foreclosed homes coming onto the market. And while many experts believed that the rapid rise in property prices wasn’t a bubble, nobody could be sure when prices would finally level out or even begin to drop.

In January, I hired the same real estate agents who had brokered my mom’s deal. They suggested I get the house on the market in February. A map of current listings in my neighborhood showed there wasn’t a single starter home on the market. There were, however, plenty of prequalified buyers looking to purchase before mortgage rates rose above 4%.

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My agents suggested setting an asking price of $475,000. I agreed to get the house ready to sell. In the three weeks between the time the house was photographed and when it went on the market, I continued to follow the local real estate scene closely. I told my husband it felt like we were living in a once-in-a-lifetime seller’s market.

Location no longer seemed to matter. Homes on busy thoroughfares were selling for tens of thousands of dollars over the asking price. The size and condition of homes seemed irrelevant to buyers. Small, single-bathroom homes that needed thousands of dollars in repairs and renovations would be snapped up quickly, and for more money than I’d paid for my home in 2018.

The day my house went on the market, my phone blew up as potential buyers scheduled times to view the house. My agent suggested setting Sunday evening as a deadline for offers. Given the overwhelming interest in the home, they were anticipating I’d have several offers to sort through.

On Friday evening, barely 24 hours after listing the home, my agent called to tell me there’d already been an offer. The buyer’s agent used the word “aggressive” to describe it. Aggressive might have been a bit of an understatement.

I was presented with an all-cash offer of $125,000 over the asking price. All contingencies and inspections would be waived. Closing would take place in two weeks, and my husband and I could stay in the home until mid-April without paying rent.

When I moved into my home in 2018, I had no idea what the real estate market would be like in 2022. On my best days, I hoped I’d recoup my $80,000 down payment. On my worst days, I imagined the market collapsing, as it had in 2006-12. For now, I’m savoring the fact that I somehow managed to time the housing market—and that I’m walking away with a handsome profit.

Yes, I readily admit it, I got lucky. Would I buy a house today in hopes of turning a profit after four years? Not a chance. Conventional wisdom might say you need a five- to seven-year time horizon to come out ahead on a house purchase. But based on the market frothiness that I’ve seen, I suspect these days it’s a lot closer to seven years—and maybe longer.

Kristine Hayes is a departmental manager at a small, liberal arts college. She enjoys competitive pistol shooting and hanging out with her husband and their dogs. Check out Kristine’s earlier articles.

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UofODuck
UofODuck
6 months ago

Ms. Hayes correctly notes that there is an increasing tendency among homeowners to view their homes as just another investment. I personally feel that way about my stock portfolio, in which I only care about my investment performance, not what funds or stocks I own. On the other hand, my home is where I live, in a community where we have been residents for 30+ years, where our children live and work, and where we have long term friends and neighbors. I will concede that these attributes of home ownership may not be important to everyone, but to many other home owners, this benefits have value that transcends the monetary value of their homes. As a side note, the monetary value of your home is typically only important on two occasions: when you buy it and when you sell it.

Humble Reader
Humble Reader
6 months ago

I remember feeling a little resentful during the 2008 real-estate-bubble-bursting triggered recession that as a Midwesterner we were being unfairly punished for imprudent financial behavior we were largely excluded from. We in the Midwest watched as housing prices on the east and west coasts and the sunbelt skyrocketed and then crashed, while our property values only modestly changed.
The same seems to be happening now. Our Midwest property values have recently gone up but only by a little more than the general inflation rate while the coastal and sunbelt areas are booming.   Hopefully enough of the financial controls enacted after the Great Recession are still in place to prevent another crash.

Chris Sciora
Chris Sciora
6 months ago

Ah, also forgot to mention the raging stock market returns from the past ten years. Prices tend to skyrocket across the board when people are feeling wealthy regardless of whether it’s money that can be spent safely.

Chris Sciora
Chris Sciora
6 months ago

Actually, I don’t think it’s luck or timing. It seems like historical averages.

When we started investing in real estate, my rule of thumb was property values doubling in about 15 years. That’s translates to about 4.75% annual appreciation which is the historical average (close enough depending on who’s arguing about it). Most everyone seems to forget that from 2008 through 2019, real estate growth was either flat or still recovering from 15 – 50% declines when the market crashed in 2008.

Although our home has gone up in value tremendously over the past two years, the cumulative appreciation over the past 14 years is still only double the original sales price. Most likely it will keep shooting up for another year or two and level out again for the next decade.

That’s pretty typical for most of the properties I’ve seen around the country that have sales data over fifteen years. It’s skewed because all the growth is happening in a relatively short time window due to Covid mobility, low mortgage rates, buyer demographics and reduced home building after the last crash from developers going bankrupt and choosing another line of work.

parkslope
parkslope
6 months ago
Reply to  Chris Sciora

You make some valid points. However, I hope you agree that luck plays a significant role in investing. Kristine and I were clearly lucky to have purchased properties shortly before a major runup in prices just as those who bought houses just before the crash in 2008 were unlucky.

macropundit
macropundit
6 months ago
Reply to  parkslope

Exactly. I purchased a home in Southern CA a mile from popular beach in 2020 and only paid 10% more than the previous owner paid 15 years before. Including a bathroom renovation he did and maintenance, he clearly lost money. When I tell people that they’re shocked, but they shouldn’t be. A shift of a few years at one end or both and he’d have done much better. It’s cyclical. Pure chance. Selection bias and ignoring expenses is why people think real estate does so well.

Kristine Hayes
Kristine Hayes
6 months ago
Reply to  Chris Sciora

I really appreciate your analysis of the housing market and I think you’re spot on. I know I had come to accept a 1-2% appreciation in real estate values over the past decade or so. It seemed like owning a home (for less than five to seven years) was no longer a good investment. But then when values started rising 18 or 19% a year, it felt crazy. But, as you say, over the long run, it all averages out. Thanks for your thoughtful post.

UofODuck
UofODuck
6 months ago

I bought my first house in 1975 and have lived through at least 3 different crashes in the housing market. In each instance, there were plenty of people who lost homes or significant financial resources as a result of being on the wrong side of the luck curve. While our homes have value, we also need to remember that they are first and foremost where we live. Ms. Hayes has every right to be happy at the sale price of her home (although I question why anyone would leave Portland for Arizona!), but we should also be concerned for the buyer who was required to pay an inflated price for their new home. Good news for those of us fortunate to live in a neighborhood with inflated prices, but sadly, many of our children will never be able to live in the same neighborhoods.

Kristine Hayes
Kristine Hayes
6 months ago
Reply to  UofODuck

I think there are several different perspectives when it comes to home ownership. While many people view their houses as ‘homes’ and can’t imagine selling them and moving, I also know there are people who see homes as just another investment. I fall into the second category. I’ve purchased and sold three homes in my life and never felt an emotional attachment to any of them. I’ve actually purchased all of them with an eye towards selling them for a profit. I specifically want a house with a good floor plan, in a good neighborhood, that requires some updating (which I do myself). Staying in one neighborhood has never mattered to me.

Quite a few housing experts seem to think home prices in Portland are simply catching up to the prices of other cities on the West Coast. I know homes in Portland have been valued considerably lower than similar homes in Seattle for many years now. Time will tell if buyers in Portland are paying inflated prices or if they are getting into a home before prices really go crazy.

Andrew Forsythe
Andrew Forsythe
6 months ago

Great story, Kristine, and congrats on your timing. Our youngest daughter and her husband were in the tough position of home shopping last summer in Austin, Texas, one of the hottest housing markets in the country. They got lucky and, offering of course considerably more than the listing price, managed to snag a great house.

What really iced it, though, was my daughter writing the owner a letter explaining how this house was perfect for them, everything they loved about it, etc. The owner later said it brought tears to her eyes and was a big reason why she chose their offer among the many. Crazy times indeed.

Kristine Hayes
Kristine Hayes
6 months ago

Thanks Andrew. That’s an interesting story about your daughter and the ‘house love letter’. Oregon banned such letters last year but a judge blocked the ban a couple of weeks ago: https://www.oregonlive.com/news/2022/03/federal-judge-blocks-oregons-first-in-nation-ban-on-homebuyer-love-letters.html

SanLouisKid
SanLouisKid
6 months ago

Great recap of your experience. I’m glad it worked out so well for you and glad you’re aware enough to know that luck at least played a little part. I just checked the real estate listings in my hometown in Kansas and you can buy a 3-bedroom, 1.5 bath, 1,996 sqft house in a good part of town for $55,000. There’s also a 1,117 sqft house for sale for $20,000 but it probably needs a little work.

Kristine Hayes
Kristine Hayes
6 months ago
Reply to  SanLouisKid

I’m definitely counting my blessings–luck played an enormous role!

I love looking at house listings from around the country. It boggles my mind to see the variation in what you can get for your money.

Ronald Wayne
Ronald Wayne
6 months ago

Another condo in my 38-year-old building had nine offers after three days on the market and sold for $10K above the asking price of $115K. A unit below it sold last year for just $80,500 although it wasn’t updated as completely, but still a big difference.

Kristine Hayes
Kristine Hayes
6 months ago
Reply to  Ronald Wayne

The difference in prices between late last year and early this year is crazy. My agent told me a lot of buyers were desperate to find a place before mortgage rates went above 4%.

parkslope
parkslope
6 months ago

My wife and I were fortunate to have purchased our home in Raleigh when we retired in the summer of 2019 as well as four rental properties we purchased in January 2020 to defer taxes on the gain from the sale of our properties in Brooklyn. According to Zillow, our real estate has increased 48% in value and the rate of increase is greater now than it was last year. Our rental income was flat until the summer of 2021 but rents are now increasing rapidly.

Our son and daughter-in-law were on the other side of things when they purchased their first home last August. After losing several bidding wars, they bought a place sight unseen $60,000 over the list price ($610,000). Zillow currently estimates that their home is now worth $725,00. Insane!

Kristine Hayes
Kristine Hayes
6 months ago
Reply to  parkslope

Insane indeed! When we purchased our home in Arizona (back in 2019), we bought it sight unseen. We had been outbid on two other homes so we took a chance on it. It ended up being the perfect house for our lifestyle. The value of it (according to Zillow) has nearly doubled in three years. Crazy.

Frank Anthony
Frank Anthony
6 months ago

I did the same, sold in March 2022. Thing is, it is a one time opportunity, now I’m priced out of my own home town. So this works if one is moving away. Also, sad that my children will likley never be able to buy into the area in which they grew up. Not ideal for society overall.

Kristine Hayes
Kristine Hayes
6 months ago
Reply to  Frank Anthony

We were definitely fortunate we already had a second home to move to. And fortunate to live in an area where housing prices are rapidly increasing.

Cammer Michael
Cammer Michael
6 months ago

How much of the trend of price increase is due to investment companies buying homes? How will this change the landscape of home ownership for individuals and families?

Greg
Greg
6 months ago
Reply to  Cammer Michael

Exactly. It’s common knowledge that the BlackRocks, Zillows, etc are capitalizing on this home ownership trend and driving toward a “different” objective for your home. Regardless of who you think you may be selling to a lot of times they are only the reps for the bigger investors. I get letters every day, here in Florida, from someone wanting to buy my home, sight unseen, for very good money. You don’t “flip” a house for profit if you are already paying $50,000 and up to purchase it. But you do pay up if you plan to rent the property, getting paid paid back in a relatively short time, 2 to 3 years in some cases. There is a drive to rent, not own, as exhibited by a development here in Florida that has recently purchased a substantial number of acres on which to place upwards of 1000 or more homes, a whole community, not for sale, but for rentals only. How will this change the landscape for home ownership for individuals and families?……a lot. And not in a good way.

Sylvester Black
Sylvester Black
6 months ago

Great article. I have seen similar trends in my North Chicago suburb. Starter and mid size homes sell for 20% or more than they did 2 years ago. I don’t know if any would sell for 125K over asking but I am happy for your your success and your luck.

Kristine Hayes
Kristine Hayes
6 months ago

In Portland right now, most homes seem to be selling for about $50 to $75K over asking price. The agent at the title company who helped me sign the sale documents said she believed Portland is undervalued right now, at least when compared to other large cities on the West Coast.

James McGlynn CFA RICP®
James McGlynn CFA RICP®
6 months ago

Kristine did you have to pay taxes on the gain? Great story.

parkslope
parkslope
6 months ago

Single owners can exclude $250,000 of the capital gains on their personal residence and married couples can exclude $500,000.

Richard Gore
Richard Gore
6 months ago

I’ve always enjoyed your posting. I’m happy for you. Congratulations on your house sale and retirement. I hope you have a great retirement in AZ.

Kristine Hayes
Kristine Hayes
6 months ago
Reply to  Richard Gore

Thanks Richard. It’s an exciting time for sure.

John Goodell
John Goodell
6 months ago

Congratulations on your amazing success!

Kristine Hayes
Kristine Hayes
6 months ago
Reply to  John Goodell

Thanks John!

Paula Karabelias
Paula Karabelias
6 months ago

Thanks Kristine for an excellent article. Here in Massachusetts we have seen some buyer remorse as a result of buyers waiving inspections and as soon as they move in, the problems (some costly) begin. The other trend is that some buyers are paying far more than appraised value , so the bank requires them to make up the difference. I read years ago that on average people move every 5 years, but as you point out, people will have to live longer in their homes to break even.

Kristine Hayes
Kristine Hayes
6 months ago

You’re welcome Paula! I’m surprised by how many buyers are waiving their inspections and paying over appraised value. But the market is so crazy right now, I guess buyers feel like they have to do whatever it takes to get a home. I recently read that rents in Portland are rising even faster than home prices, so I guess that creates a huge incentive to buy.

R Quinn
R Quinn
6 months ago

I have a house on the Cape, back in 1987 I paid $159,000. I have expanded and remodeled. However, I was recently told it would easily sell for $1 to $1.2 million. That’s insane, but I checked around and found houses smaller and older than mine were going for $800,000 or so. Looks like another bubble coming.

Bob Wilmes
Bob Wilmes
6 months ago

I suspect the potential gains on your Arizona home might be even greater than your Portland home. I’m astonished by the multimillion dollar homes in the Scottsdale area. The downside is long term residents are being displaced as rents soar and incomes remain limited.

Kristine Hayes
Kristine Hayes
6 months ago
Reply to  Bob Wilmes

The Arizona home has also increased dramatically in value. I’m very glad we purchased it when we did.

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