We here at BILLSHARK have seen tight housing markets before, but the 2021 buying frenzy beats them all. So how do you buy a home in this seller’s market?
Ellen Coleman has been selling real estate for 15 years, but has never seen anything like what’s happening these days. She recently listed one fixer-upper in Washington, D.C. on a Thursday; by Sunday evening she had 88 offers on the home. Of those, 76 were all-cash and 15 were sight unseen.
“The offers just kept coming,” she told CNN last month. “I felt like Lucy with the chocolates. I’m thinking, ‘This is just out of control.’” Coleman works for RE/MAX Realty Centre. She said the four-bedroom, 1,800 square-foot home was originally listed for $275,000. It sold for nearly $460,000.
A seller’s market is hard on buyers
A seller’s market means home buyers pay the price. Not only in higher prices but also in the stress of trying to find a home to buy right now.
Kristen Mallory, who works in financial services in Aurora, Colorado, has been renting with her husband and mother for the last six years. They want to find a home with space enough for the three of them. They’d like a good yard for their dogs and room for a garden and backyard gatherings.
“We had no idea how terrible and competitive the Aurora market is now,” Mallory, 33, told MarketWatch earlier this month.
Whenever the couple finds a possibility, they’re outbid. They’ve seen homes they hoped to buy get more than 20 offers, including from corporations and investors who make all-cash offers.
“We have some money and are pre-approved by three different banks, but we can’t compete with all cash,” she said.
Why the frenzy?
One of the main reasons for the frenzy in sales is historically low interest rates. In July of last year, the 30-year fixed rate on mortgages fell below three percent. This is the lowest level since mortgage investor Freddie Mac began tracking mortgage rates in 1971. They’re largely remained low ever since. Although they ticked up slightly in recent weeks, two weeks ago they fell again, sparking more buying.
Also, sellers who would typically be looking to move up to a larger home see what’s going on and decide to stay put for now. This is especially true if they took advantage of the record-low rates and refinanced last year. This further adds to the tight supply.
“It’s a tight, tight market,” Jen Crouse, an agent with Compass in Pittsburgh, told WPXI-11 News there. “It’s a big circle. People aren’t moving down or moving up because they can’t find what to move into, so they aren’t listing. I’ve seen people listing to get top dollar now, planning to live with family for a while or in temporary housing until the market changes a bit. It’s a very extreme market.”
Adding to the supply problem is a pandemic-related lumber shortage, which has slowed homebuilding in recent months. The cost of lumber has soared by up to 180 percent, adding about $30,000 to the price of new homes.
Buy now or wait it out?
If you can afford to wait for the supply to ease, you might be better off in coming months.
Danielle Hale, chief economist at Realtor.com told CNN that more inventory is expected to become available this spring. At the same time, however, that doesn’t necessarily mean buyers will be better off.
“Prices will stay steady or continue to rise, because there will still be more buyers than sellers, and interest rates will rise,” she said.
Melissa Cohn, an executive mortgage banker with William Raveis Mortgage, agrees.
“If you find the house you like and you can afford it, that house is not going to be around for long,” she told CNN. “If you’re comfortable you can buy it, you should proceed. Interest rates will go up. That’s a certainty.”
If you still want to buy
It’s not impossible to buy a nice home for a reasonable price in a seller’s market. But you have to be prepared, and you have to be patient, according to experts.
- Find an experienced agent to work with who can clue you in to properties as soon as they become available, or even before.
- Be sure your finances are in order. The more cash you can afford as a deposit, the more likely it is a seller will take your offer seriously.
- Get pre-approved for a loan, so you’ll be ready to move fast.
- Be flexible about contingencies: You absolutely must have an inspection, but think of waiving any others. The easier you make it on the seller, the more likely they are to accept your offer.
- Be flexible and patient. Unless you must move immediately (in which case you should consider renting for a time), know that it could take several months in the current market to successfully buy a house.
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