You may still see snow and below freezing temperatures outside your picture window but soon flittering birds, longer warmer days, and “For Sale” signs on green lawns will boldly say that spring is back. Spring is always the busiest time of year in the real estate industry. Much of it has to with the school calendar. When you account for home preparation, marketing, negotiating, loan approvals, inspections, appraisals, closing, and the other requirements of selling, it makes sense to begin the buying or selling process in March, April, and May.
This spring is
going to be a little different from the past several years. You’re much less
likely to see skyrocketing prices and bidding wars. It will remain an active
market but with changes. Millennials now firmly control the market. Affordability
will continue to be a huge challenge based on already high prices continuing to
rise (slower), the continuing low inventory, student debt, and rising interest
rates. The market will be active but less so compared to 2017 and 2018 because unaffordability
will continue outpacing wage growth.
Some of these tips and
observations may surprise you:
Sellers are no longer in the driver seat. There continues to be an ample number of buyers but many have been in the market for quite some time. They know what they can afford and won’t jump into bidding wars based only on unbounded hope. Many who will be in the market have been saving for more than a year. These buyers understand budgets. Few think their incomes will grow substantially to make an overpriced home more affordable within a few months. Buyers will be scaling down rather than up – a dawning of a new reality for many millennials.
Buyers look to less desirable neighborhoods. This doesn’t mean gang war zones. It means moving farther out from city centers. To places with less highway access and less 24- hour conveniences. This could be good news for sellers in neighborhoods that were once thought of as unpopular. Increasing sales in these neighborhoods will be the foundation of the spring and summer market.
Some things come around again. This is what most parents of millennials had to do. Millennials will begin accepting homes that are more basic. They will better prioritize what they “must have” rather than what would be “nice to have”. These buyers will accept trade-offs. This applies to both the house and the neighborhood. Some sellers will have to maintain more affordable selling prices to leave financial room for millennials to make their own upgrades to hi-tech and other features they want. The younger generation will need to take on more DIY projects or wait until they build equity to borrow against to have projects done professionally.
Opportunity for those who have been saving for years. Not everything will be perfect but this will be a better year for those that have been saving long term to buy. Those who have been on a budget to save typically have seen their credit score improve. The better your credit score, the lower interest rate you’ll qualify for. Although interest rates will continue rising, these are the people most likely to qualify for the lowest interest loans this year.
Unaffordability will continue keeping many out of the market. Affordability is getting worse, not better. Interest rates will play a big role. Although still historically reasonable, rates are reaching seven year highs. There is no sign of relief for those who couldn’t afford a mortgage last year. And those with burdensome student debt will not find relief in lower interest rates for student loans. Although rates seesaw up and down, they are generally going up. If there is a silver lining, it’s downward pressure on prices or at least less upward pressure.
A new twist on having offers accepted. The tight inventory has put a premium on innovative ways to get offers accepted. The personal letter has become commonplace and the all-cash offer is out of reach for the vast majority of buyers. A new twist in the middle is for buyers to foot the inspection fee before making an initial offer. A clean or acceptable home-inspection means the inspection contingency can be removed from the purchase offer. Faster closings help because the school calendar still applies. Many sellers want to get to the closing table early in the season so they too can move to a new school district before the new year begins.
2019 will be better than 2020. For sellers who have been on the fence, this spring will almost certainly be better than next year. Home price growth slowed in the second half of 2018 and all indications are the trend will continue in view of unaffordability. If sellers on the fence move into the market this spring in large numbers, it will be a good sign for buyers.
Please comment with your thoughts about the spring real estate market. Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to [email protected].
Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years with articles listed on Yahoo Finance, Benzinga, and uRBN. Brian is a regular contributor at Realty Biz News