Spring has sprung and in some markets the best houses are selling in three to five days, with multiple offers and even bidding wars. According to data from the National Association of Realtors, homes for sale in February fell for the 21st straight month when compared with the previous year. There was only a 3.8-month supply at the current sales pace. Prices are up as well as mortgage interest rates. Those are today’s facts. A big question is what to expect going forward?
If you’re a market follower, you know the challenges and benefits of buying or selling a home this spring. But what might happen if you decide to hold off and wait longer to buy or sell? Will your home continue to rise in value - and sell for even more? Will the hot market cool down for better buying conditions? Or are we in another housing bubble that’s about to burst?
The mortgage industry made a lot of changes over the past 10 years. Notably, things like no-doc loans and negative amortizing loans are mostly a thing of the past. Required larger down payments mean homeowners have more skin in the game. As a result, foreclosures have been dropping every year since the peak in 2010 (2.23%). The 2017 foreclosure rate of 0.51% (ATTOM Data Solutions) hasn’t been this low since 2005 when it was 0.46%. The general conclusion is that there isn’t likely to be a wide spread housing bubble burst.
The good news for sellers is that The Housing and Mortgage Market Review forecasts sales prices will continue increasing at least until 2020. Granted, increases are expected to slow to a range of between 2 to 6%. But that means sellers can expect to make a decent profit for at least a couple of more years. The lower appreciation rate will also keep prices from becoming too far out of reach for middle income buyers. Anticipated wage increases are expected to roughly match appreciation.
People pondering selling in less desirable neighborhoods (limited highway access or more distance to the city) should be closely monitoring local buyer trends. The next few months may be the best time to sell in an unpopular neighborhood or a house that doesn’t meet all of the criteria for a dream home. Right now is a time when buyers are having to move some of their “must have” criteria to the “would be nice to have” list.
The mantra for buyers for many months has been “be prepared to move fast”. At the very least, this means being as far through the mortgage qualification process as you can go before submitting offers. It also means having other related tasks as far along as possible. This includes a draft or template of a cover letter that can be quickly updated to attach to an offer. Buyers should stay carefully tuned into the local market so they know what they can afford. Buyers should also have that carefully thought-out “must have” list along with a revised “would be nice to have” list.
Do everything you can to be prepared to move instantly when “your” house comes on the market. But be careful not to do anything you might regret. If you don’t get a house this week, more will come on the market next week. An emerging and risky trend that is developing is making offers without financing and inspection contingencies. This puts your earnest money at risk and you could find yourself back in the starting blocks.
Another notable trend gives an advantage to the millennial generation over baby boomers. Recent studies and surveys show that millennials are more prepared and willing to make instant purchase offers. Baby boomers tend to want to further study comparable prices and further research neighborhoods before submitting an offer. Baby boomers should expect the most desirable houses to have offers made in 3 to 5 days after first coming on the market.
But again, more houses will come on the market next week and the temperature of the summer and fall markets could change.
Please comment with your insight to the spring market.
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 12 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.