We all know the homebuying process is stressful. From trying to find a home you like, to getting your offer rejected, it’s a perilous journey and you’re happy when it’s done. Anyone currently in the market for a new home or who has recently purchased one, knows that as with everything else in the past year, it’s been difficult.
As a current homebuyer you’ve likely experienced the following:
Trying to get a showing the day a home is listed
Homes being on the market for a day and getting multiple offers
Putting in an offer that is well over asking price and getting rejected
Supply and demand
There are a few reasons for this, but the main culprit is supply and demand. There are more buyers than there are sellers. The National Association of Realtors released a February 2021 report with some interesting statistics that explains the current shortage.
The following stats are for Midwest home sales priced from $250,000 to $500,000 for February 2021:
25% increase in home sales when compared to February 2020
A 23.7% drop in inventory
Average days-on-market is 18 days
As you can see, the Midwest, like the rest of the country is experiencing increased sales and a decrease in inventory. All these factors have led to increased home prices. Nationally, the existing home sales median price is 15.8% higher than it was a year ago. Last year, homes were on the market an average of 36 days. Currently, a home is on the market for an average of only 20 days.
New homes aren’t faring much better. Sales of new U.S. single-family homes decreased 18.2% to a seasonally adjusted annual rate of 775,000 in February of 2021. This is well below market forecasts of 875,000.
Tips for homebuying in this market
The current market is tough, but there are ways you can smartly navigate it. Below are a few tips and reminders to help you make it through.
1. Don’t overbid
Current market conditions may make you feel like you need to go overboard when putting in an offer. It’s not uncommon for homebuyers to make offers $10,000 to $30,000 over asking price. While you may win the offer, this can cause issues down the road. For example, if the home appraises for closer to asking price, you may need to cover the difference. Depending on your financial situation, you might not have the extra cash on hand. You can go back to the seller and try to renegotiate but this will delay closing or the offer may be rejected. It’s also important to remember that your mortgage is only a piece of the puzzle. You need to factor in property taxes, homeowner’s insurance, utilities, and mortgage insurance. You don’t want to get stuck with a higher mortgage than you’re comfortable with.
2. Prepare for competition
As the statistics listed above indicate, supply is limited. If you find a home that you’d like to put an offer on, chances are slim that you’re the only one. This may likely result in a bidding war. This is great for sellers but not so great for you, the buyer.
Winning a bid war doesn’t always mean that you put in the highest offer. There are a few ways to make your offer more attractive. You can offer more earnest money up front or close sooner than other buyers. Cash offers are usually given preference, but you can still compete. Get pre-qualified, it will strengthen your offer.
Current homebuyers may also benefit from increasing their geographic search area. You may find less competition a bit farther from downtown or popular suburbs.
3. Wait it out
Mortgage rates are at historic lows, but you shouldn’t feel obligated to buy a home right now. A home is a big investment and rushing can lead to additional stress. Make sure you’re not settling on a home that doesn’t fit your needs. If you wanted a house with four bedrooms, then stick to that. Mortgage rates will likely be low for a while and the economy is still in recovery mode. Waiting a few months could mean you get more house for your money.
4. Be nimble
Homes are not on the market long so your best bet is to see a home within the first few hours/days its available. Early offers tend to be taken more seriously and have a better chance of being accepted. In this market, it’s not uncommon for sellers to list a deadline for all offers to be submitted.
Tips for selling in this market
If you’re on the other side of all this and you’re a seller – now is the time to the sell. A real estate agent that I frequently work with said it best. “If you're thinking about selling, now is the time. I cannot emphasize this enough. Having more buyers than sellers creates a strong market, and typically offers at or above asking. Houses will be on the market for less than an hour within getting multiple offers.”