A dual market is a real estate term that many of the savviest homeowners are still unfamiliar with. But understanding this neat little real estate paradox is especially important for the homeowner who’s looking to sell and move into a bigger place.
Supply and demand, or how a dual market is born
First introduced by real estate broker Larry Kendall, a dual market allows current homeowners to sell their entry-level home at a premium. This “trade up” gives homeowners extra cash for an increased down payment for a new house or the opportunity to pay down debt. Simultaneously, these homeowners can move up to a higher-level home and negotiate a discounted price.
When this occurs, it often gives buyers the ability to have a similar monthly payment for a larger home. Andrina Valdes, Executive Sales Leader at Cornerstone Home Lending, says, “It’s the perfect buying low and selling high scenario.”
A dual market is rare. In fact, this is the kind of real estate unicorn — only occurring when a number of housing market factors fall into place — that hasn’t been seen in about 40 years.
In many markets:
1. Homeowners looking to sell can do so in a seller’s market.
An appreciating market is great for the seller. A seller’s market, Valdes explains, is when there is high demand and little inventory. When this happens, homes sell for a premium.
2. The same homeowners can buy a bigger home for less in a buyer’s market.
A depreciating market is where a buyer stands to gain by moving up. John Powell, Chief Development Officer of Help-U-Sell Real Estate, says, “If you have a $200,000 home that has depreciated 5 percent per year, your home value is $190,000, and you’ve lost $10,000. However, if you’re turning around and buying a $400,000 home that has depreciated at the same amount, that seller is losing $20,000, but you’ve gained $10,000 in the buying power of your upgraded home.”
This can be caused by both excess housing inventory and a tight lending market. If houses depreciate at the same rate, Powell explains, you’re paying a fraction of the price increase in the house you are buying.
When these circumstances take place at the same time, a homeowner is leveraging both markets to the fullest.
“Generally speaking, inventory is tight across the country on a historical basis, reflecting a seller’s market. However, dual markets, where both seller’s and buyer’s markets co-exist in varying price ranges (i.e., tighter supply at the lower end/first-time homes, coupled with greater supply in move-ups and higher-end), are showing up in certain areas,” John Marshall, COO/CFO of HomeASAP, owner of the Real Estate Agent Directory™ on Facebook, says.
Our current market fits this scenario perfectly, Valdes says. Right now, there’s plenty of demand in the lower housing market, plus plenty of inventory in the higher housing market, still accompanied by very low rates.
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Today’s dual market has been forced by an increase in household creations from the millennial generation without sufficient home inventory in the lower price points to support the demand. Valdes explains that this is why we’re seeing, in many markets across the county, homebuyers who have to bid over listing price just to be able to compete with multiple offers on the same home.
Should you trade up in a dual market? 5 action steps to take
If you’re in a dual market, and planning to sell soon, this is a real estate overlap you’ll want to take advantage of. But there’s a reason this term is so infrequently used. Most homeowners don’t know a “dual market” exists.
Once you’re ready to buy, you can start tracking your home loan remotely. Our free LoanFly app makes it easy.
Now you understand the why behind the dual market (supply and demand), but here’s how you can get the most out of a dual market in your local area:
1. Jump on lower mortgage interest rates.
Interest rates remain quite low by historical standards, Marshall says. But the expectations are that they will eventually start moving up more rapidly. “That may provide some opportunity for those living in starter homes to cash in their equity, take advantage of both the seller’s market at the lower-end to get top value for their home and softer conditions in the mid-to-upper ranges to be able to negotiate a favorable price on their move-up home,” Marshall explains.
When you’re ready to sell — and then buy — a mortgage lender can help by providing flexible loan programs to keep monthly payments affordable.
2. Double check your finances.
A dual market presents an exciting possibility, but it may not be the right time for every homeowner to make a move. “As always, even if there is an excellent deal to be had, buyers should make certain they have the financial means to comfortably meet their mortgage obligations. Reputable lenders can help them with this assessment,” Marshall says. Ideally, your agent can work with you to identify market opportunities and point you in the right direction. Your lender can verify whether such opportunities are ultimately workable based upon your personal finances and loan programs available.
Marshall adds, “Opportunities in real estate always have been, and always will be, about timing and financing. Consumers should investigate such opportunities when market conditions are favorable, like today.”
We’re ready to answer any questions you may have about a dual market. Click here to find a Cornerstone location near you.
3. Get prequalified for a home loan first.
As we’ve just learned, the best way to help homeowners maximize a local dual market is by encouraging realtors and lenders to work together. When agents and lenders join forces, we’ll see a rise in more listings and more buyers in the market.
Establish your “dual market dream team” by working with a realtor you can trust — and by selecting a reliable mortgage lender that will help you get prequalified for a home loan early on. Having a solid loan prequalification from a reputable mortgage lender can increase the odds of a seller accepting your offer over another potential buyer, Valdes explains.
4. Get a home equity review next.
For homeowners hoping to tap into the dual market, you can gain more insight by requesting a home equity review after a home loan prequalification. Your lender or your realtor can provide a home equity review to show you how much money your home is worth. This will also reflect how much cash you may get from the sale.
5. Tackle home improvements.
Even with the potential for a local dual market, you may not feel that it’s the right time to sell, move, and trade up. But consider this as a possible alternative: Because prices are up, it’s a great time to check your equity to do improvements around the house. Home improvements could increase your home value by anywhere from 1 to 35 percent, providing a potential boost for a future sale. A home loan refinance can also allow you to pay off debt using a cash out.
A dual market is unique, but it may be happening near you. There’s only one way to find out. Contact one of our loan officers to learn more about the dual market and to determine if it’s a good idea for you to move up. Depending on your market, you could buy low, sell high, and keep your mortgage payments stable in a larger home.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources deemed reliable but not guaranteed.