Most professionals are expecting a hot and aggressive market to be facing buyers as we head into the spring spike in home sales. It’s been a full decade since we saw a glut of houses on the market that wouldn’t sell for a large number of reasons including unemployment, underwater mortgages, short sale sales, a huge inventory of neglected foreclosures, etc. That certainly is not the case going into the spring housing season of 2017.
Following a decade of underproduction of new housing (especially at the first-time buyer level), housing prices in hot markets have seen double digit increases. Substantial price hikes will probably be curtailed in the foreseeable future as higher interest rates set in and prices exceed what buyer’s income affords. Right now, low inventory levels only compound the problems buyers are facing this spring. Because of these factors, potential buyers should expect bidding wars as the spring buying season heats up.
Owners.com, an innovative online brokerage, recently commissioned a survey of more than 1,200 consumers considering a home purchase this year. The theme of this year's spring real estate season? Stress. A whopping 72 percent expect the stress to be related to finances. In descending order, 64 percent of respondents fear losing earnest money, 61 percent fear becoming “house poor” – not being able to afford amenities they want and/or no longer being able to afford small luxuries such as an occasional diner out, and 59 percent believe bidding wars will drive prices higher.
Buyers are entering the market with a plan to bid prices up. In this competitive market, a full 55 percent expect to pay an average of $37,809 above what they have budgeted for a home to get what they desire. If the seller’s average time on market is an indicator, the buyers are probably correct in their thinking.
During the slower winter season, the National Association of Realtors most recent survey of “days on market” shows that the time it took to sell a house fell by 28 percent, from 69 days in January 2015 to 50 days in January 2017, the last month figures were available. During the 2015 and 2016 spring season (May and June) the average days on market fell below 35 days. This year it can be expected to fall below 30 days.
Owners.com President Steve Udelson emphasized the overextended areas of the east and west coasts comprise only 30 percent to 40 percent of prospective home buyers having the median income that could finance the mortgage for an average-price home. These are the buyers most able to bid prices up. Potential buyers on the margins will try to follow along but may not be able to.
Essentially, auctions (bidding wars) will be created whether potential buyers know it or not. Likely, once potential buyers are priced out of their first choice, they will move on to a second and third choice. As the spring housing season progresses, the pool of marginal buyers will become more concentrated with successful bidders finding themselves owning houses they are barely able to afford. The financial stress of buying a home will be followed by the financial stress of needing to pay for that home.
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Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 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. With the Pacific Ocean a couple of miles in the opposite direction.