Spring is near and along with rising temperatures and growing grass so is the anticipation that the seasonal real estate market will bring buyers and sellers to the closing table. Unfortunately, that’s probably not going to happen in the numbers that many in the industry have hoped for. Inventory remains low as potential sellers hold out for higher medium prices in the market. Just as significant is there are not many buyers in the market and that is not likely to change significantly as we move into the spring market, traditionally the most active time of the year for the real estate industry.
The Buyers View
While active sellers are sticking to higher prices because inventory is low, buyers see a much different picture. What buyers are seeing is less affordability overall. Housing prices have risen between 6 percent and 14 percent over the last year in most markets. Compound that with interest rates that are up a full percentage point and the buyer is facing a higher cost for ownership. Some are being priced out of the market. And don’t forget the real estate melt down between 2008 and 2011. It’s still clear in the buyer’s rear view mirror and a constant reminder of the risk as the economy struggles with an ultra slow recovery.
Year on year mortgage applications are down 50 percent from a year ago and existing home sales are down for the past four months. Also, buyers can expect competition from investors to slow significantly in 2014. Investors that were buying in bulk the past few years will find fewer deals available and the market will be allowed to return to normal. As an example, institutional investors in Phoenix bought only 44 properties in December compared to a high of 831 in July of 2012.
Inventory is Returning
While inventory remains low, it is inching up. Not only have underwater mortgages recovered but also investors are coming back into the market. However, investors aren’t coming back so much as buyers but rather as sellers. Those that took action in 2011 and 2012 when the best deals were out there are now ready to cash in on their investments.
The industry as a whole has been predicting prices to raise less in 2014 than they did in 2013. Rising inventory is one of the big reasons for this. According to Realtor.com, markets like Sacramento, where asking prices increased 11 percent last year, the number of listings was up 58 percent in December. Minneapolis saw inventory grow 35 percent, Orlando is up 31 percent, Atlanta is up 27 percent, Dayton, Ohio is up 24 percent, Oakland California inventory is up 23 percent, and Phoenix inventory has grown 21 percent.
New Home Construction Will Add to Inventory
New home construction has been increasing. Although coming off a historic low, the 2013 increase was a modest 15 percent. It is expected to grow 25 percent as the spring construction season gets underway. Major homebuilders across the country are reporting more projects already under construction and less aggressive pricing as the competition for new homes increases.
Overall, buyers have two choices. First is jumping into the spring market with gusto before prices rise, although prices increases can be expected to remain stable going forward. Or wait to see what the increase in inventory has in store for the market. If buyers wait to see what the increase in inventory will bring, they can expect to find slightly higher prices but will have more selection and may still be able to negotiate a good deal.
Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.