During the second half of 2020 and all of 2021, mortgage rates sat at some of their lowest levels in history. These days, rates are still competitive in their own right. But since the start of the new year, they've been higher than they were at any point in 2021.
That's not stopping buyers from scooping up properties, though. In January, the average home spent just 61 days on the market, according to data from Realtor.com. That's the fastest sale pace ever recorded.
Of course, quick sales are a great thing for sellers. But the rapid pace at which homes are flying off the market is creating a challenge for buyers. That extends to everyday buyers and real estate investors looking to build out their income property portfolios.
If you're eager to buy a home in today's market, there's one move that could give you an edge over other buyers. But whether it's feasible is a different story.
Skip the mortgage, if possible
A big reason homes are moving off of the real estate market so quickly is that some buyers are coming in with cash offers. Cash offers commonly appeal to sellers because they can lead to quick closings and fewer hiccups.
The problem, however, is that everyday buyers may not have the cash on hand to buy a home outright. This especially holds true in today's real estate market.
In the course of 2021, home prices rose 17.5% compared to 2020, according to the Federal Housing Finance Agency's House Price Index. And while buying a home outright was never an easy thing to do, it's an even more difficult ask at a time when property values are so inflated.
That said, in this regard, real estate investors may have an edge over regular buyers due to being able to tap existing equity to scrounge up cash. But even so, some investors might hesitate to tie up large amounts of cash in a property.
Still, in an age when homes are selling at such a quick pace, cash offers are king -- when they're doable. And paying cash could spell the difference between getting to buy a home when inventory is so tight versus having to wait.
Another option buyers can consider
If you can't come up with a pile of cash to purchase a home outright, it doesn't mean you're completely out of options. Rather, you can increase your chances of getting an offer accepted on a home by getting a mortgage preapproval.
A big reason sellers tend to favor cash offers is that mortgages have the potential to fall through. But if you go in with a preapproval, your seller will have some degree of reassurance that your financing isn't likely to be a problem.
To be clear, a mortgage preapproval doesn't guarantee you a home loan. But if your financial situation doesn't take a turn for the worse between the time of your preapproval and your home loan application, there's little to worry about in that regard.
If more inventory hits the real estate market later this year, competition could wane, and the pace of home sales could start to slow. But until that happens, buyers today should consider the upside of paying with cash if that's a possibility.