It’s no secret that being a home buyer over the last few winters has been very stressful for many and not very rewarding for some. Bidding wars have been rampant nationally, not only in Massachusetts.
This can be very frustrating for buyers as many have made offers on multiple homes and not been able to obtain them.
This line graph shows the inventory of homes for sale by week back to the beginning on 2016:
Buyers have become filled with all kinds of mixed emotions and questions about the current market and what that means for those hoping to buy a new home. They have thoughts similar to this gentleman below.
Sound familiar? This is how many buyers feel and it is understandable they feel this way. It can be extremely discouraging to make an offer on a home which ends up being rejected or topped by another buyer. Giving up seems to be the next logical step if this happens a few times, but it’s not.
Why does this happen?
This happens because of the simple function of supply and demand. The reality is every single winter and early spring there are more home buyers out looking to buy than there are sellers listing their homes for sale. Inventory is at its lowest point in the winter which is why we have said that Listing in the winter makes you the most money– since it’s a seller’s market.
More Buyers than Sellers
There are substantially more people looking for homes to buy during the winter and early spring with far fewer people looking to sell. Bidding wars ensue as prospective buyers battle over the available homes on the market as the supply goes down and the demand goes up. As a result, homes sell much faster compared to the rest of the year. This past December, we saw the housing inventory reach the lowest ever recorded! January of this year began with the lowest inventory that we have seen in years as you can see in the graph below. It was the lowest inventory of homes for sale since 2003.
When will this imbalance end?
The imbalance has started to let up slightly, although many buyers are not seeing it yet. With every passing week, the inventory is increasing and the number of buyers is beginning to lessen as they are beginning to find homes. Buyers must remember that the competition is the other buyers. There will be less competition as other buyers find homes. Additionally, as more sellers list their homes, inventory increases. If you look closely at the line graph below, you will understand why Bidding Wars always slow down by summer and are infrequent in the fall. When buyers have more choices and fewer buyers to compete with, homes take a little longer to sell and the likelihood of bidding wars decreases. We are beginning to see some early signs of this, however, the number homes for sale in Massachusetts and Southern New Hampshire is increasing at a slower pace than normal. As of May 15th, there are 7.6% less homes on the market than we had last year on the same day.
This graph clearly shows how the market typically transitions from a sellers’ market to a buyers’ market as the year goes on.
Are fewer homes being listed?
There were 38,907 homes listed from January 1, 2018 to May 15, 2018 compared to 39,796 at the exact same time last year. This represents a decrease of over 2%. Despite the decrease in homes listed this year compared to last, many homes have still in fact been listed which comes as a surprise to many. The number of buyers outweighs the number of available homes, but that doesn’t negate the fact that almost 39,000 homes have been listed in the past five months in Massachusetts alone.
This housing market resembles the game of PAC-man; homes are being eaten up as fast as they are being listed.
What should a buyer do?
The first thing a buyer needs to do is make sure they have hired a Realtor who is working diligently with them to navigate this type of market. Buyers have a lot of prep work to do before they are ready to make the strongest offer to win a bidding war. Hiring the right team to back them is the first step. The best thing a buyer can do from there is to continue to look, try to have some patience and be ready to strike without wasting any time when the right house pops up. It helps to find a Realtor from a brokerage who can provide you with all the homes for sale as they are listed without delay. If a buyer sees a great house come up at a good price, they will not be the only one who feels this way. It is essential that the offer is written correctly to be the strongest that the seller receives. Following our Tips to Winning a Bidding War will help.
Now to quickly answer all those questions and concerns from above:
Will it be like this forever? – No, the bidding wars will slow down by late summer and will be less typical in the fall, when it is the best time of the year to buy a home due to the higher amounts of inventory which will make it more of a buyer’s market.
Will I ever land a home? – Yes, if you keep trying, eventually it will work out. You just need to be patient during the buying process and be ready to make the strongest offer possible.
Maybe I need a new Realtor? – This may be true. If you have an agent who isn’t providing you with tools to make you the strongest option for a seller nor bringing every home that becomes available to your attention, you may need a new one.
Maybe I should give up and sign a lease for another year or two? – This is a terrible idea as you will run into the same situation next year if you try to buy at the same time. Additionally, you will waste more money on rent and miss out on a years’ worth of appreciation. In addition, interested rates have gone up a point in the past year and are expected to rise even further next year so it’s pretty likely that in a year or two, property values will be even higher and the cost to borrow money will be even more than it is today.
Will I just have to overpay? – A home is only worth what a buyer is willing to pay. If you and other buyers are willing to pay a certain amount, then it’s worth it!
Why isn’t anyone listing their homes for sale? – People are listing their homes for sale, but the homes are selling almost as fast as they are being listed.
Is this another housing bubble? – Anything is possible, but it is highly unlikely as this boom doesn’t compare to the last one. Everyone could get a mortgage years ago, but that is no longer the case. When the market crashed in 2007, there were more than 45,000 homes for sale in Massachusetts alone and that is why the market tipped over. Right now, there are approximately 14,400 homes for sale. Furthermore, prices over the last few years in Massachusetts and New Hampshire have only gone up about 5% per year. That is nothing like the bubble of years ago.
Maybe this is a sign that I shouldn’t be buying? – The real estate market’s supply and demand imbalance all over the country is not a sign to one buyer that they should not buy. We live in a land of free and open markets. The market is hot right now and it is a sellers’ market. If you want to own, you have to be patient and diligent.
Will my town still hold its value in 5 years? – Real Estate is locally focused so if something major changes in a specific town, then anything is possible. Generally speaking, it is highly unlikely that values won’t hold in the years to come.