People fleeing from cities and cramped apartments during the pandemic are rushing to buy homes -- during a time of limited inventory. There's reason to believe investors could expect many of those homes to hit the market soon.
Hasty home buying
The pandemic has caused people to act in unusual ways, as evidenced by grocery stores with one-way aisle arrows, circles on floors indicating where we should stand, and arguments about whether to send children to school. But probably one of the most unusual behaviors is rashly buying -- not a pair of shoes or even a car -- but a home, likely the largest purchase of a lifetime.
Problems with buying in a seller's market
There are problems with buying a home during a strong seller's market. The homes are probably overpriced, but besides that, because of stiff competition buyers are often waiving home inspections, passing on doing due diligence overall, or simply not thinking carefully about whether the location is somewhere they'd like to live long term. These buyers are sometimes winding up like one Los Angeles millennial, who realized after just a few nights in her new home that she hates it.
Panic buying rarely turns out well. But if it's just canned tuna or toilet paper, while you might be making it difficult for everyone else to get their share, you probably won't break the bank with those sorts of panic buying purchases. But you could if you panic-buy a house.
Pandemic housing fever
Many people, particularly urbanites, have been in a panic during the pandemic, feeling a loss of control over their environment. Exacerbating the problem is the Zillow (NASDAQ: Z) (NASDAQ: ZG) phenomenon, particularly popular among millennials, of browsing through Zillow listings.
Besides the kid-in-a-candy-store type of reaction, these Zillow browsers are also seeing how fast homes go under contract. This creates a perfect storm of house-panic-buying behavior.
If showing people empty grocery shelves causes them to panic buy grocery items, as a journal article published in the National Institutes of Health says, if you show homebuyers one sold sign after another, you'll likely get a panic-house-buying situation.
The urge to flee the city
Staying in a crowded city has become too much for a population already fearful about the coronavirus. Many people see their ticket to safety (and sanity) as a nice home in the country or suburbs, where they can have some space.
But when a lot of panicked buyers simultaneously enter a housing market with little inventory to begin with, the "lucky" ones who win a bidding war tend to scoop up their "prize" before someone else snatches it away. It's not a stretch to believe that many of these frenzied buyers are now experiencing buyer's remorse. In what could turn out to be an understatement, one real estate agent told Fox Business regarding buyer behavior: "People were getting all crazy, and they weren't as thorough as they usually are."
And they're back -- houses, that is
Some homebuyers with buyer's remorse will keep their homes, at least for a while to perhaps pay for closing costs. But others will want out now.
One house-in-the-Hamptons family who waived an inspection put the house on the market immediately after purchase upon finding an infestation of wasp nests. Another buyer was so desperate to buy something -- anything -- after losing out on seven other houses, she bought a house knowing it had toxic mold and asbestos. She subsequently sold, taking a financial hit to rent a place instead.
The Millionacres bottom line
Investors are good at buying houses no one else seems to want. Here's a new field to add to your watch list: recently sold homes back on the market. You'll probably find the seller is, as they say, motivated.