It's tough being a homebuyer nowadays. Record sales, high prices, and lots of competition are only a few of the many challenges' buyers are facing in today's market. Here's what to be prepared for:
Inventory is at its lowest point in many years. According to Realtor.com's April 2021 Monthly Housing Market Trends Report, the national inventory of active listings declined by 53% over last year. The report also indicates that homes are selling at historical speed, with the time on the market for a typical listing dropping down to a low of 43%. Bidding wars are common right now. The competition is fierce.
Prices Too High
Home values are rising. According to CoreLogic's home price index, home prices increased by 9.2% year-over-year in December 2020. We are almost halfway through 2021 and home prices are already increasing at an even higher rate. You may not be able to afford a home today that you could have afforded last year. For example, a similar home may have been listed 10% less last year. Let's say you're looking for a home in the $300,000 price range and your mortgage lender has you approved for this price. If the house price is 10% higher, at $330,000, you may not be able to be approved for it now.
It's important to keep your emotions in check. Don't fall in love with a home and think it's the only home you'll be happy living in. If you're in a multiple offer situation, your offer may not be the offer the sellers choose. There are many reasons for this. According to an article on Realtor.com, here are a couple reasons offers are rejected:
1) Your financial picture didn't look solid enough. Sellers are looking for buyers who will pay cash or who have a loan program with the least risk. They want buyers who have a good-sized down payment.
2) Your offer was too high- really. You may be thinking this isn't possible. Home values have risen. However, the home has to appraise or your lender won't finance it. If you offer too much, the seller knows they may end up coming down in price if it doesn't appraise. They may end up going with a more reasonable offer, at list price or a little over, that has a possibility of appraising.
Home Equity Worry
Some buyers are worried about the equity in homes they purchase in today's market. If home prices don't continue to rise, you may not be able to build equity in your home. It could be even worse if home prices drop over the next few years. No one wants to have negative equity. The good news is that the housing market is how it is because Covid-19 paused the market for a while last year. There is pent-up buyer demand and many sellers decided to hold off putting their homes on the market last year. Hopefully, home prices won't decrease.
Wait it Out
Many buyers are deciding to wait it out. For some buyers, the challenges they are facing are making it near impossible to buy a home right now. This is especially true for buyers who are not financially solid. For example, a buyer who is obtaining an FHA loan and only putting down three percent is less likely to have their offer chosen by the sellers if there's another buyer obtaining a conventional loan and are putting down 20%. The real estate market will balance out. The real estate market, like any other financial market, is cyclical.
Today's real estate market is full of challenges for buyers. Try to stay positive. You will find the home of your dreams someday.