If you feel like demand for housing in your area is on fire and the supply of homes on the market is small, you’re not alone. In fact, Housing inventory (the amount of houses up for sale) hit its lowest level in a decade this spring, especially among starter and trade-up homes. So what’s going on, and how can potential buyers deal with mismatch of supply and demand?
Millennials are ready to buy
The millennial generation has started to hit the age of 30. With this milestone has come a transition into the traditional trappings of grown-up life, from marriage to children to the desire to own real estate. In fact, more than 80 percent of millennials want to buy a home, according to a recent survey of more than 24,000 people born between 1982 and 2004. So what’s holding them back? One major issue is a supply of reasonably priced housing.
Low inventory has sent prices up
It’s a seller’s market all across the United States right now. The supply of homes up for sale is low, driving bidding wars and increasing prices in markets where there were plenty of homes on offer just a few years ago. The average time a house stays on the market right now is just 3 months, well below the long-term average of 5.3 months.
A Freddie Mac Outlook report released in April pointed to several factors driving the low inventory, including low mortgage rates (current owners don’t want to put their homes up for sale because it may mean trading up to a higher interest rate). Plus, developers—who remain wary following the housing crash of 2008—are still building far fewer new homes now than they did before the crash. Finally, the low inventory continues to fuel itself, with potential sellers deciding to hold onto their homes because they fear they may not find something else they like in their price range.
This low inventory has led to higher prices and bidding wars across the country. The Case-Shiller home price for the country was up 5.8% by March, and even cities like Sacramento and Phoenix that were hit hard by the 2008 financial crisis are now seeing booming prices and fierce competition, especially for homes priced affordably.
What’s a wannabe buyer to do?
Even with a tighter housing market, it’s still possible for first-time homebuyers to purchase a home of their own. In most places, it is also a better investment to buy than to rent if you’re planning to stay for a few years or more.
Buying in a competitive market requires a little more preparation than you’d need to do otherwise. First, set a budget that you feel comfortable with and commit to it. Having a clear idea of what you can afford will be helpful if you do end up getting caught in a bidding war later on. Emotions can run high at that point, so having a well-defined limit to what you want to spend will help focus your decisionmaking.
Next, make sure you prioritize exactly what is most important to you in a home. You may need to compromise on certain things in order to stay within your budget, so having a clear ranking will be helpful in making tough decisions.
Finally, get pre-approved before you plan to start putting in offers on homes. You’ll need to have a pre-approval to put in a competitive offer. You don’t want to find a home that’s right only to not have your financing lined up—in a fast-moving market, you won’t have time to pull it together at the last minute.
And throughout it all, remember to stay positive about your home search. Getting the right home in a hot market can be challenging, but the good news is that if you stick it out and find the perfect place, you won’t have to move again for years.
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