Are you looking to buy a home in this current market? If so, are you having fun yet? In the past 8-10 months, most offers we’ve submitted have wound up competing against 5-20 others for the same home. Yes, it is crazy out there with historically low numbers of homes for sale and droves of buyers lining up to buy them. And even though there are indications the market could be loosening a bit, we are still a ways away from “normal,” – whatever that turns out to be.
For the most part, Sellers are still on the sidelines, and the main reason seems to be they don’t want to enter the buyers’ arena. And who can blame them? As nice as it would be for them to watch a potential bidding war for their home, they don’t relish the idea of becoming buyers themselves in this current market.
New home construction is also heating up, and that is a good thing. But the “COVID” brakes were not only put on the builders but the manufacturers of building materials as well. So as sellers of existing homes sit tight and builders scramble to catch up, buyers carefully monitor these historically low-interest rates with the hope their inevitable uptick won’t be too dramatic before they find their next home.
So, what does all this mean? Again, there is no crystal ball, but as we see indications that seller apprehension is decreasing, we can also see buyer fatigue set in on those who have now been in this market for months. We suggest to our buyers to be ready but be patient. And while we understand the frustration they may be experiencing, now might be the time to take a breath, step back for just a moment and consider their position. That doesn’t mean to get out of the home search. It only means maybe it’s time to re-evaluate and regain some perspective.
In a typical selling season, inventory would only now be ramping up. No, this is not an ordinary season, but many of the old rules still apply. Buy and sell in the spring and summer, spend time with family and friends in the fall and winter. What is expected to be a bit different is the current season to push back a bit further into the year. And this is why it might be wise for frustrated buyers to take that breath. If sellers start to get in the game and builders begin to get their new builds online, things could loosen up in the late summer or early fall.
But the last piece to this unique puzzle of a real estate market is interest rates. It seems that for the past number of years, we have continually used the term “historically low-interest rates.” And we have done that because it is true. Interestingly, we once spoke in those terms not so many years ago when rates dropped below 5 or 6 percent. Those were “historic” lows at that time. They have since continued to decline, and we now have buyers in the market who have never seen rates above 4%. I don’t say this for any reason other than to keep some perspective. Rates were recently as low as the mid to upper 2s, and this was ticking up to the point where the federal reserve had no more room. As I write this, interest rates have ticked up to about 3%. These are still historical rates.
I don’t mean this to sound like an increase in an interest rate doesn’t matter because it always does. Buyers make a decision to buy a home, determine their budget, and then speak to a lender to see what that equates to in terms of purchasing power. These low rates not only have brought many buyers into the market that would not have otherwise been there, but they have also created “cheap money” for investors. I remember a college professor saying, “the law of supply and demand does not just apply to money. It applies to everything, including the air we breathe.” Yes, the current housing supply is low, and buyer demand is high. That equates to escalating home prices. But what happens if the rates in the coming year move into the low to mid 3s as projected?
Well, that is when we would say to our buyers to keep the faith and consider that if a slightly higher interest rate sat down some of the buyers, including investors, maybe that would not be the worst thing. If inventory can start to catch up and buyer demand can settle down, so will home prices. They may not come down, but if we can move out of the bidding wars, we can at least look at the home’s list price as a relatively accurate measure of the eventual sales price.