At this year's War of Home auctions, prepare to say, "Load! Or waving the white flag of surrender depends on which side of the white fence you are on.
Potential American buyers face fierce competition for limited inventory as low mortgage rates and pent-up demand drive the seller's market. Sellers, on the other hand, see multiple offers (and even cash) that are often well above the offer price and estimate. The result: real estate prices rose in March by a remarkable 13.2%, according to a leading national index a year ago.
Elinda F. Kiss, Associate Clinical Professor of Finance at the University of Maryland's Robert H. Smith School of Business, followed the market frenzy closely and shared her thoughts in a recent interview.
Why is the market so wild right now?
To boost an economy that was weakened from falling spending during the 2020 pandemic, the Federal Reserve cut interest rates and injected hundreds of billions of dollars into the markets by buying stocks. Last spring, due to the pandemic quarantine, nobody was able to visit a house that was for sale, and demand was pent up by autumn. Low interest rates have also enabled buyers to pay more for a home.
As a result, there are simply more buyers than sellers in today's landscape, and homes are moving quickly, often for more than the asking price. For example, our daughter had to bid $ 20,000 more than the asking price because she outbid 20 previous homes.
Any tips or tricks for success when you find "THE" home?
When you are ready to make a cash offer, you have an advantage as sellers know that the sale can be completed quickly with no unforeseen events. However, to increase your chances of an offer being accepted in this market, you may need to act quickly and be creative.
What advice would you give to shoppers who aren't in cash?
If you can, get a pre-approval letter from a trusted lender; This letter shows that you are creditworthy and able to pay the mortgage that you need to take out to buy the home. Sellers want a buyer who can close quickly and is flexible about when to close.
Second, try to make a "clear offer" without the unexpected. No seller wants to accept an offer that fails in a few weeks if the valuation is lower than the agreed sales price.
Plus, virtual tours allow you to explore homes before they're officially listed, so you can bid to buy your dream home as soon as you see it in person. In April 2021, 47% of US homes were on the market a week before an offer was accepted. (We sold our home last fall. Of the seven couples who saw it on the first day it aired, five sent out one-day sales contracts.)
And you need a good local broker who understands the market, can present your offer professionally and quickly and has a good idea of the selling price of the house.
Finally, prepare for a bidding war with a plan that will allow you to act quickly. To avoid paying more than you can afford for a house you want, think about what you need to have in the house in advance. Identify what is non-negotiable and where you are willing to be flexible.
What advice would you give to sellers looking to get the most out of this market?
First, put your home in order by donating, throwing away, or storing much of what is in your home. Buyers want to imagine their furniture and memorabilia in the house, not see theirs. Also, make sure that the front of the house and yard look good; The first impression is important.
Don't go too far in renovating or repairing your home. Buyers may want to make their own changes and generally don't want the updates you made. Schedule the necessary repairs. You can have an optional home inspection to identify problems.
Is the market so hot that we are heading for another decline?
While the 2008 crash was terrifying, with nearly 9.3 million borrowers losing their homes to foreclosures and short sales, the market looks different today.
First, mortgage standards have improved. In the early 2000s, it seemed like he could qualify for a mortgage as long as he lived and breathed. High risk borrowers who did not make their monthly payments on time were still qualified. Lenders did not verify borrowers' incomes, resulting in "credit lying". Reviews were often "drive" - is there a house there? Correct; he evaluates. But today, with improvements in underwriting technology and quality controls, it is difficult to qualify for a mortgage.
Second, there is always a shortage of homes for sale. In 2008 there was an oversupply of apartments for sale; the resulting drop in prices puts many new homeowners "underwater" and leads them to lose their home.
Third, homeowners have equity in their home. During the 2004-07 bubble, many homeowners applied for home loans to purchase a second or third home. When prices fell, these owners were in a negative equity position; As a result, they have "wandered" from their homes, resulting in an overabundance of foreclosures and short sales, which continue to depress prices. Today, more than 50% of homeowners own more than 50% of the equity in their home.
This interview has been extracted from an original version available on the Smith Brain Trust website.
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