The Current Real Estate Market: What You Can Do In a Seller's Market
The real estate market is an ever-changing environment. It has gone through many different phases throughout the years, and there are always new trends happening that could make it more favorable for sellers or buyers. Currently, we are in a seller's market, which means homes are being sold quickly and at high prices. In this blog post, we will discuss why this is happening and how it impacts you as a buyer.
What the Real Estate Market Looks Like Right Now
The housing market is booming right now, but it can be difficult for a buyer to find a home when there is limited inventory available. The market has shifted from a buyer's market to a seller's market across the country, and this could have an impact on what a buyer is able to afford.
What is a seller's market?
A seller's market is a real estate term used when the number of interested buyers is more than the number of homes available. Essentially, demand is higher than supply. This means that sellers can ask for higher prices and sell their homes quickly because they know they have many people interested in purchasing a home. As indicated in the name, a seller's market is most advantageous for those who are looking to sell their homes. If you are planning on selling anytime in the near future, now may be the time to move forward.
What is a buyer's market?
On the other hand, a buyer's market is a real estate term used when the number of homes available is more than the number of potential buyers—i.e., supply is higher than demand. This market is most advantageous for those who are in the market to purchase a new home. In this case, it creates competition for the property in question which often drives down prices.
What's happening right now?
Supply is low in the current market, and demand is high. Interest rates are low, making it an attractive time for people to consider buying a home. Those who planned to wait a few years to buy their first home may have decided to speed up their timeline in order to take advantage of the current rates. Others may be choosing to upgrade to a larger home or invest in real estate properties while they have the advantage of a low interest rate.
Inventory is Down
However, inventory is down across the country, which means there are fewer homes for sale than usual. This lack of inventory means that it's a great time for selling a home, and those who do decide to sell are likely able to make a higher profit on their property. Right now, sellers have more bargaining power than ever before and don't need to lower their asking price in order to sell.
How the COVID-19 Affected the Market
The COVID-19 Pandemic that started in early 2020 is a major factor that has contributed to the current market. When the pandemic hit, the number of homes for sale drastically decreased. There are likely several reasons for this. People were quarantined into their homes and unable to interact with other people, open houses and home tours were prohibited in many areas, and many businesses closed, causing people to temporarily or permanently lose their jobs. Given all this information, people were hesitant to sell or buy a home when they were unsure of what the future might hold.
Interest Rates are Low
Interest rates can fluctuate drastically based on a number of factors. Back in 2008, we saw rates higher than 6%. Prior to 2020, the average interest rate for a mortgage was around 4%. The COVID-19 Pandemic that began in early 2020 caused mortgage interest rates to drop. Many banks started offering mortgages below 3%. This trend has continued into 2021, and many people are seeing mortgage rates in the low to mid 2% range.
What You Can Do as a Buyer
This might sound intimidating or frustrating for a buyer, but all hope isn't lost! It can still be a great time to invest in a new home, you just have to know what steps to take in order to ensure you are getting the right place and the best value for your money. Here are some things you can do that will put you at an advantage in today's market.
Talk with Your Realtor
First of all, be sure to talk with your realtor and let them know what you are looking for. Your agent may have suggestions that you haven't yet thought of and may know of houses that are coming on the market soon but haven't yet been listed online. Ask your agent to email you online listings daily so you can be the first to know of new homes coming onto the market.
Get Pre-Approved For Your Home Loan
Just like all investments, it is always good to know what you are getting yourself into. You will want to be pre-approved for a home loan before making any offers so that you can make an educated decision. According to Forbes.com, a pre-approval will let sellers know that you have verified your finances and have sufficient credit to purchase a home. In order to get pre-qualified, gather the required financial documentation from your bank and submit them with a completed application form. Then, when you find a house that you want to put in an offer for, you'll be prepared with all the necessary paperwork to ensure that the process moves quickly and smoothly.
If you find that your pre-approval amount isn't what you were hoping for and won't allow you to purchase a home that meets your needs, take a look at your credit and see if there are any quick, easy actions that you can take to approve your score. Your lender may have suggestions for actions that you can take that will positively affect your score.
Work with a Local Lender
If you work with a local lender [LINK], you may have an advantage in working through the process more quickly. Local companies typically offer a more personable experience and can help you find a local appraiser who can work quickly through the process.
Keep an Open Mind
Now is a good time to consider what your "must-haves" are and what you are willing to compromise on in your new house. Maybe you decide to expand your search radius a little further and look in multiple different cities. The larger the area you're willing to consider, the more listings will likely fall into your search criteria.
If you are willing to buy a home in an up-and-coming area that hasn't yet been fully developed, you may have a better chance of finding a good deal on a property that meets your needs.
If you are having trouble finding a home in your price range, consider buying an older home with potential for renovation that you can "flip" later. Or, if you want to buy new construction, consider moving into an unestablished neighborhood where prices are lower and demand isn't as high yet.
Plan Your Offer Strategically
Now is not the time to "lowball" and place an offer much lower than asking price. Because the demand is so high and people are willing to pay full asking price or even higher, a seller likely won't even consider an offer that is much too low.
On the other hand, you don't want to place an offer that is too high and risk the appraisal coming in too low. If the home value doesn't match the price, you may struggle to get approved for a loan. It's also good to remember that the higher your offer, the more cash you will be required to put down at closing.
Don't Get Caught Up in a Bidding War
Right now, competition is high and buyers are getting into bidding wars over available homes. If you find yourself in a position where you are in a bidding war with other buyers, decide what you are willing to pay (your top dollar), and DO NOT get caught up in the bidding war and end up offering more than you can afford. Remember, at the end of the day, you still have to be able to pay the mortgage on the home.
The shortage of available homes can sometimes cause people to panic and put in an offer on a house that they don't really love. Especially for first-time home buyers, you don't want to end up in a house that doesn't meet your needs and doesn't work for you and your family.
Be Patient
This is a hard thing to do when you are excited about the home buying process, but for a buyer, it's crucial that you can be patient in a seller's market. Even when demand is higher than supply, the most important thing to remember is that you find a home that fits your needs and that you end up paying a price that falls within your budget. Unless you are moving to a new city for a job and need housing right away, or absolutely have to buy a new home right now, wait until the right one comes along. Your agent should be willing to work with you for as long as it takes to find a home that is in the right city, for the right price, and provides housing that meets the needs of you and your family.
