If you’re searching for a home this spring, get ready for a fight.
Bidding wars are likely because mortgage rates are low, demand is strong, and the amount of homes for sale is down — way down.
“January has already been strong with prices up, home sales up, (and) listings …down quite a bit,” says Daryl Fairweather, chief economist with RedFin. “So homebuyers are more likely to face competition.” She thinks sales will still be strong, simply because more buyers will pull the trigger on buying homes.’
The coronavirus remains a wild card, however. The outbreak of COVID-19 is helping drive down mortgage rates as jittery investors shift from stocks to bonds. But the virus might deter some house hunters who are worried about their jobs, their 401(k’s) and their physical health.
“The recent developments with coronavirus may throw a wrench in these patterns we’ve been seeing,” Fairweather says.
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Fewer homes mean higher prices
Last spring, buyers had more of an upper hand as more properties came on the market and sellers tried to woo back house hunters turned off by high prices and higher interest rates.
Now buyers have fewer choices. At the end of January, there were 1.42 million units, including condos, co-ops and single-family homes on the market, up 2.2% from December, but down 10.7% from the same time last year, according to the National Association of Realtors.
January’s housing inventory was the lowest it’s been in 21 years, according to NAR.
Fewer homes coupled with high demand means higher prices. In January, the median sale price for housing including condos, single-family dwellings and new construction was $306,000, up 6.7% from a year ago, according to Redfin.
Mortgage rates continue to drop
But mortgage rates continue to drop as concerns about the coronavirus roil financial markets, leading the Federal Reserve to take the surprise step of cutting key rates by half a percentage point this week and more investors to put their money in bonds.
Rates for a 30-year fixed mortgage dropped to 3.56% this week, the lowest since October 2016, according to Bankrate’s weekly survey.
Low rates are a key reason the greater Boston metropolitan area has less than two months of single-family home inventory available for sale, says Jason Gell, president of the Greater Boston Association of Realtors.
“We’re seeing lots and lots of people, buyers, at open houses,” Gell says. “Interest rates are still extremely low so that … the actual monthly payments are fairly affordable.”
Coronavirus is a wild card
But the economic uncertainties sparked by the coronavirus outbreak could make some people hold off on searching for a home, at least in the short term.
“I think that all of the fears are going to somewhat offset the drop in mortgages,” Fairweather says, referring to the lower interest rates. “Buyers may feel less wealthy if they don’t see their stock portfolios doing well, or they just might not have home buying as top of mind when they’re worrying more about their health.”
She believes that any slow down in demand will be short-lived, however. “I think the stock market will recover,” Fairweather says.
Homeowners are staying put
One reason there are fewer homes for sale is that homeowners are staying put longer.
Some held off on selling because in the wake of the 2007-2009 Great Recession, their homes were worth less than they’d paid and they needed to wait for their properties to regain value, says Jessica Lautz, vice president of demographics and behavioral insights at NAR.
Others aren’t ready to downsize because they need room for multiple generations within their family.
“Perhaps adult children or aging parents have moved into a family home,” Lautz says. “Where traditionally someone may have downsized, now they’re repurposing a children’s bedroom as a grandparents’ bedroom.’’
Given the limited supply of homes for sale, buyers shouldn’t waste time, says Fairweather.
“Being early, acting quickly, could be an advantage this spring,” Fairweather says. “If you wait until summer, or the end of summer … you may see fewer homes available. It’s also a good time to take advantage of low mortgage rates.”
Homes could also get even more expensive if the stock market continues to tumble, says Gell.
“There might be people looking to diversify into real estate instead of stocks,” he says “That can cut affordability for buyers.”
Here are some other tips for buyers and sellers to keep in mind.
Don’t give up – “Be patient,” says Lautz. “You may have to bid on several properties before you beat out the competition for that home.”
Work with a broker – “That local realtor will know how to sweeten the pot for that potential seller, and make your offer the most attractive,” Lautz added.
Go the extra mile – Consider writing the seller a letter. “It doesn’t cost the buyer anything to write a nice little letter about how much they like the home,” Fairweather says. “But other financial incentives, like having an all-cash offer, shortening the escrow terms, waiving contingencies and offering more money, obviously … help too.’’
Spruce it up – “Even in this tight inventory environment, homebuyers’ expectations have risen,” says Lautz. “When they come into homes, they expect them to look like TV shows. They expect them to be staged. They’re attracted to beautiful photos online. … Those types of factors really do matter.’’
Don’t get greedy – “An overpriced home is still going to sit on the market,” Gell says. “With the right price, you’re likely to get a bidding war.”
Know where you’re moving before you hand over the keys – Have a plan for what you will do after you sell your home, whether that’s staying in temporary housing, or buying another property before the sale of your house closes if you have enough cash.
“While it may be very easy for them to sell their home…it may take multiple tries to buy a home, especially in more competitive markets,’’ says Fairweather. “What’s difficult for sellers is … getting that timing exactly right.”
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