The market can change quickly. Here are some tips to help you no matter what market you might find yourself in.
Anyone following the stories about the housing market over the last year might have felt more like they were reading a script for a Hollywood action movie. With home prices soaring to record highs, brutal bidding wars, and some sellers receiving dozens of cash offers in one day, it was enough to make a timid shopper stay on the sidelines and reconsider a new home purchase.
With the New Year starting, many are wondering what that will mean for the real estate market. If buying or selling a home is on your to-do list for 2022, you’ll want to know what kind of market you might be in and how to make the most of it for your transaction.
Signs of a Seller’s Market
The majority of the country experienced an historic seller’s market over the past year caused by a somewhat perfect storm of industry factors. The key signs of a seller’s market are:
- Low inventory
- High consumer demand
- Rising home prices
- Homes sell quickly
Low Inventory – The leading factor in determining whether you are in a buyer’s or seller’s market is the amount of homes currently on the market, also known as inventory. The COVID-19 pandemic in 2020 caused major upheaval in the real estate market. People were afraid to list their homes for sale since they didn’t want to allow unknown people inside for tours, inspections and other parts of the selling process which played a key role in driving listings down for that year and into 2021. The early part of last year saw inventory hit an all time low, although the number of homes for sale did climb as the year went on, but not to previous levels.
The country was also experiencing supply chain and shipping issues that affected new home construction projects. That meant there were far less new construction houses on the market as well, leading to greater competition for the homes that were out there.
High Demand – Another result of the pandemic was its effect on the demand for homes in non-urban locations. Many people who were spending the majority of their time in their homes decided they needed more space. With businesses and schools going virtual, Americans in large numbers yearned for more space which meant leaving big cities for more suburban areas. If you are able to do everything from home, why not move into something bigger? This motivation caused many people who wouldn’t normally be looking for a new home to enter the housing market, driving up demand.
Rising Home Prices – As any Economics 101 professor will tell you, when supply is low and demand is high, prices will go up. For anyone who is not a real estate professional, simply comparing home prices is the easiest way to figure out whether you are in a buyer’s or seller’s market. High prices are great for sellers and 2021 was their year. Sale prices shot up 20% toward the end of the year compared to the previous year and, while the rise leveled off somewhat, experts predict they will continue to go up. With fewer houses on the market, sellers were able to sit back and watch potential buyers try to outbid each other in vicious battles that sometimes resulted in buyers paying as much as $1 million over the asking price. One home in Maryland received 76 all-cash offers. Imagine trying to decide which offer to take!
Homes Sell Quickly – While it’s easy to blame or thank (depending on what side you’re on) the pandemic for all of this, much of the country was already experiencing a seller’s market before 2020. However the effects of covid on the economy and behavior helped to intensify it. The average days on the market in 2019 was 30 days and that dropped to 25 in 2020. During the peak of the housing frenzy in 2021, it had dropped to just 15. Those numbers climbed in the later part of the year, but because the housing market is seasonal and more people shop for homes in the spring and summer, experts predict them to go back down, but not as low as last year.
What should I do in a Seller’s Market?
If you plan to buy a home in 2022, chances are you will still be in some version of a seller’s market, although it shouldn’t be quite as intense as what buyer’s experienced last year. Before you panic and put your therapist on speed dial, here are some tips to help you keep your sanity while you hunt for your dream home:
- Get pre-approved for a mortgage
- Find a trusted realtor
- Have your down payment ready
- Come up with a list of must-haves
Get Pre-Approved – Because seller’s markets are highly competitive for buyers, you’ll want to make sure that you have all the items on your financial to-do list checked off before you start looking for a house since you might need to make an offer quickly. Fortunately, getting approved is a relatively simple process. A great tool to check before you get started is a mortgage calculator (backlink) like this one from ???. But even before you start wondering how much house you can afford, take some time to work out a realistic monthly budget, keeping in mind there is more to owning a house than just mortgage, insurance and utility payments. You’ll want to be setting aside money every month for repairs and maintenance and the home you choose might even need some work before or right after you move in.
Find A Realtor – Whether you’re a first-time buyer or you’ve already bought and sold multiple homes, a seller’s market isn’t a place you want to go alone. Because so few homes are available and prices are higher, inexperienced buyers can end up paying too much for a house and then ending up with a serious case of buyer’s remorse. A veteran real estate agent can help you negotiate a better price for a home or tell you to walk away from a deal that just isn’t worth making. When it’s your own home, sometimes the emotion of the experience can cloud your judgement so having an objective third party there can help you get some perspective. In a seller’s market, you should also be prepared to lose out on one or more homes that you make an offer on, so having an agent there to keep you motivated to continue your search amidst the disappointment is invaluable.
Have Your Down Payment Ready – Just like with the mortgage, you’ll want to have your down payment ready to go at a moment’s notice in a seller’s market so you can make a quick offer. For first-time buyers, this might be as simple as taking the money out of your savings. The general rule used to mean a down payment of 20% of the sale price of the home, but there are many helpful programs available, especially to first-time buyers which might mean you have to put down less. Talk this through with your mortgage broker when you are in the pre-approval process. For buyers who are also selling a home, all or some of the down payment might be contingent on the sale of your current home, which can make things a little more complicated, but in a seller’s market, it safe to expect a sale to go through so contingencies are less of a hassle.
Know Your Must-Haves, But… – You’re probably picking up on a theme here that, in a seller’s market, the buyer must be ready to act quickly. That’s why it’s so important to know exactly what you want in a house before you start looking. It can be easy to get caught up in the excitement of a competitive market and then panic that you’ll never find the right house which can cause buyers to make hasty decisions and then end up in a house that’s not right for them. Come up with a list of non-negotiables that you want in your home. This will help you narrow down your search and will make you less tempted to put an offer in a house that won’t work for you. But, depending on how hot of a seller’s market you might be in, you should be ready to compromise. Maybe you really want a house with a new kitchen, but you found a house in the perfect neighborhood that looks like it came out of a 1970s sitcom. If you’re willing to live with Formica for a little while and do the renovations yourself, you may be happier in the long run than if you chose the quartz tops in a location that wasn’t right for you. Remind yourself of what can and can’t be changed about a house and that will help you figure out what compromises you can make.
Signs of a Buyer’s Market
While most experts say the majority of the country will still be experiencing a seller’s market as we move into 2022, there are chances you might be one of the lucky ones and find yourself in a buyer’s market. Here are some ways to tell if that’s the case (hint: it’s the opposite of a seller’s market!):
- Many houses on the market
- Fewer buyers
- Lower sale prices
- Houses don’t sell as quickly
What should I do in a Buyer’s Market?
While buyers definitely have more negotiating power in a buyer’s market, it’s still a good idea to follow the advice of having a real estate agent, a pre-approved mortgage and your down payment checked off the to-do list before you start house shopping. The good news is that, once you’ve taken care of those items, the journey to home ownership should be relatively smooth. Some strategies you can use to make the most out of a buyer’s market are:
- Offer less than the asking price
- Ask for concessions
- Request repairs
Make A Lowball Offer – With an abundance of homes on the market, sellers might be willing to drop their price for the right buyer, especially if you can present yourself as an uncomplicated sale. Some sellers might be desperate for the sale for one reason or another or maybe they’ve been in the house long enough that they’ve already made a significant amount of money back on the investment and would agree to a lower price. Whatever the case may be, a buyer in a buyer’s market may have the upper hand at the negotiation table. But beware since some sellers might be insulted at a lowball offer and walk away, leaving you without the opportunity to increase the offer.
Ask For Concessions – Requesting the seller to make some financial concessions has become a common practice in any type of market, especially with first-time home buyers. According to the National Association of Realtors, about half of all sellers made some type of concession to buyers from July 2019 through June 2020 and that was in a seller’s market. Concessions frequently mean the seller will cover some or all of the closing costs, but can also include things like having a flexible closing date or even leaving behind furniture or appliances in the home. If you see something you want in the home, it can’t hurt to ask if it can stay.
Ask For Repairs – Every homeowner will need to spend money on maintenance and repairs, but if you can identify systems or equipment in the home that will need attention soon, the negotiation table is a great place to ask for those repairs to happen before the home becomes yours. In a buyer’s market, seller’s will be more likely to offer to pay for the repairs outright or to deduct a comparable amount from the asking price and the best time to make that request is when you are submitting your offer. The items will likely show up on the inspection report, but sometimes sellers get frustrated by negotiating after the inspection, so the more you know before that happens, the better.
In Any Market, Be Patient!
No matter what type of market you find yourself in, the best advice for anyone shopping for a new home is to be patient and don’t focus on “forever.” While buying a home is likely the single largest financial decision of your life, the average person moves about 10 times over a lifetime so if you’re not completely satisfied with the home you bought, an even better one could be right around the corner.