At the Money: The Best Way to Buy a House Right Now

Episode Summary

Executive Summary: In this episode of Bloomberg's At the Money, host Barry Ritholtz interviews real estate expert Jonathan Miller about the challenges of buying a home in 2023. They discuss how high mortgage rates, record-low inventory, and persistent bidding wars create a difficult market. Miller advises buyers to take a long-term perspective, secure financing in advance, minimize contingencies, and be prepared to pay above asking. The conversation also covers the rise of cash purchases, the impact of rate 'lock-in' on supply, and strategies for navigating bidding wars.

Main Topics: Current Market Challenges (Priority: 5/5): High mortgage rates (near 8%), record-low inventory, and intense competition make 2023 one of the most challenging times to buy a home. Buyer Psychology and Long-Term Perspective (Priority: 5/5): Miller advises treating a home as a long-term asset (7-10 year hold) rather than a short-term investment, reducing the importance of paying a slight premium. Bidding War Strategies (Priority: 4/5): Buyers should expect to lose several bidding wars, focus on clean offers with strong financial backing and minimal contingencies, and be prepared to pay above asking. Inventory Shortage Causes and Solutions (Priority: 4/5): Chronic underbuilding (15+ years), pandemic-driven demand, and 'lock-in' of low-rate mortgages (60% of homeowners at 4% or less) severely constrain supply. Rates falling to 5-6% could help, but a recession would add inventory at the cost of job losses. Cash Purchases and Financing Trends (Priority: 3/5): Cash purchases are prevalent at higher price points (80-90% above $5M) but have increased across the board. Financed buyers face more challenges, especially in the $2-5M range. Role of Real Estate Agents (Priority: 3/5): Agents provide a valuable buffer in negotiations and help buyers present themselves as credible, well-financed, and likely to close. New Construction and Rate Buydowns (Priority: 2/5): Large builders use rate buydowns (e.g., from 7.5% to 5.5%) to attract buyers, though scaling this strategy is limited to well-capitalized firms.

Key Arguments: Inventory is the most critical factor: supply is absent, driving bidding wars even as rates rise. Buyers should view home purchases as long-term holds (7-10 years), making small overpayments irrelevant over time. Paying a premium is acceptable if the home is exactly what the buyer wants; the host cites paying 36% over list price. A clean offer with strong financing and few contingencies is more important than the highest price alone. Rates are unlikely to fall back to 3-4%; 5-6% is more realistic, which will only incrementally increase inventory. Cash purchases mitigate rate sensitivity but do not eliminate the challenges of low inventory and high prices.

Data Points: Current mortgage rate peak: Almost 8% - Highest in over 20 years, up from just below 3%. Homeowners with low-rate mortgages: 60% at 4% or less; 80% at 5% or less - Creates 'lock-in' effect, reducing seller willingness to list. Share of bidding wars in suburban Manhattan (Q3 2023): 40-50% of closings - Nearly half of sales above asking, indicating seller's market. Cash purchase share above $5 million: 80-90% cash - Very high-end market is predominantly cash. Year-over-year sales decline (Manhattan example): Overall -30%, cash buyers -20%, financed buyers -40% or more - Financed buyers are disproportionately affected by high rates. Average homeownership duration: 7-10 years - Supports the long-term asset perspective.

Pivotal Quotes: "inventory is absent from the equation. Buyers don't have a lot of choices. So, as a result, what we're seeing just over the last year as rates have been rising, bidding wars have been rising." — Jonathan Miller: Explaining why bidding wars persist despite higher borrowing costs. "I probably only paid 10 to 15% above. And who cares? I'm going to be there for a long time. It's exactly what we wanted. I don't look at it as that kind of investment." — Jonathan Miller: Advocating for long-term perspective over short-term price precision. "the share of closings just in the third quarter that were bidding wars was 40 to 50 percent. So, half the sales, nearly half the sales, are sellers. Above the asking price." — Jonathan Miller: Quantifying the persistent strength of seller leverage in 2023.

Implications: Listeners should prepare for a prolonged seller's market. Success requires a long-term mindset, pre-approved financing, and willingness to pay a premium on well-chosen properties. Rate buydowns and cash offers will remain key tools, while inventory relief is unlikely without a recession or significant rate reduction.