After a year of high prices, homebuyers are burned out
Alexandra Lashner and her husband have been saving for their own home since they got married in 2018. Her plan this year was to buy in the Philadelphia area, near where she grew up and where her parents were.
As in the rest of the country, real estate demand and prices have skyrocketed in the greater Philadelphia area. Knowing this, the couple were careful about going over budget or paying the asking price and did not want to forego the right to a home inspection that many buyers have in order to attract homes. But after nine months of losing two houses and their pre-approval letter expiring, the couple hit the pause button as they search.
“It’s becoming impossible for us to buy a house we grew up in and the area my parents grew up in before me,” said Lashner, account executive at Frank Advertising in New Jersey. “It’s downright exhausting and we’re burned out.”
The Lashners are not alone. In June, only 32% of consumers said it was a good time to buy a home – the lowest percentage in the history of the Fannie Maes Home Purchase Sentiment Index. (And that despite super low mortgage rates and, in some circles, the feeling that everyone is buying.)
In another recent study, 33% of people who considered buying a home this year decided against it, according to ServiceLink, a mortgage company.
31% of them said that the reason they bought was not because the housing options had become too expensive. Home prices have risen in double digits every month since last summer. In May, the average price of existing homes rose to $ 350,300, according to the National Association of Realtors, up 24% year over year.
The withdrawal of buyers is reflected in the recent slowdown in home sales. Existing home sales were down 0.9% in May, which isn’t a huge drop, but is the fourth straight month that sales have declined, according to NAR.
A picture circulating on Instagram describes the range of emotions people experienced when trying to buy a home during a pandemic. They go from a happy smiley face when they finally saved enough for a down payment to tears of disappointment when their 37th offer is turned down.
More than 40% of first-time home buyers have been searching for over a year, says George Ratiu, senior economist at Realtor.com. “So it is not surprising that many people get tired.”
Take Thomas Jepsen, for example. He has toured 120 houses since the beginning of the pandemic. He’s been on multiple bids and even got up to $ 1,000 off a winning bid. Since he has no home, he has decided to give up looking for an apartment for the time being.
“It started to scare me and cause sleepless nights,” says Jepsen, founder of the home design site PassionPlans. “When I finally fell asleep, I often had nightmares about buying an apartment.”
Buyers face a number of challenges
At the heart of this crazy market is a severe housing shortage. At its lowest point in January of this year, the stock had fallen to 1.1 months, the lowest level in history. Since then, the inventory has improved slightly. Achieving a 2.5 month supply at the current sales pace in June. Nevertheless, a six-month supply is considered healthy.
This low inventory creates a number of problems for buyers.
Homes are selling at record speed
The pace of home sales was much faster than usual. In June, the typical home sold after an average of 37 days on the market, 35 days faster than at the same time last year.
“Buyers are pulling out because they are frustrated when they see a new property on the market and then discover that there are already offers,” said Bill Kowalczuk, agent for Warburg Realty in New York City.
That happened to the Lashners. The last straw came for them when a new house was put up for sale at midnight. They made an appointment to see it the next day only to find out that it was already inflated. They decided not to bother about the demonstration.
“Once you’ve lost, you have to be prepared to start the cycle over, which is a very unsustainable cycle,” says Lashner.
It’s hard to compete with cash buyers
Many first-time home buyers are being pushed out of the market by all cash buyers. In April, the proportion of pure cash sales rose to 25%, according to the NAR. In contrast, only 15% of all sales in 2020 were cash only. Most of those who bought houses with cash were non-first-time buyers.
Dan Duval, a principal at Elevated Realty, has seen the impact on customers in the Boston area. A customer recently gave up after eight months of searching because they had a hard time competing against cash offers.
“The market was so hot that buyers can hardly compete with conventional financing,” says Duval. “There was a lot of cash on offer that far exceeded demand.”
Houses are being sold at inflated prices
In the Seattle area, for example, over 4,500 homes were sold for at least $ 100,000 above asking price this year, with 580 homes sold for $ 300,000 above asking price, according to Redfin. Last year there were only 378 such deals.
In fact, the market has moved so much in favor of sellers that a third of those looking to put their home up for sale are considering a price for their homes above what they think is worth.
Buyers also have to deal with an extremely competitive market. The low supply and high demand has resulted in buyers competing for a limited number of homes, leading to fierce bidding wars. In May, 70% of all bids submitted by Redfin agents were involved in a bidding war. From 53% last May. Some houses received over 10 offers.
A home purchase plan can help relieve stress
As difficult as the market has become, there are steps buyers can take to navigate such a competitive housing market and hopefully avoid burnout.
One of the most important tools you can use is preparation. Discuss when to buy a home with your realtor. In today’s competitive market, be prepared to be flexible in your apartment hunt. If you limit yourself to one particular style of living, you may be missing a home that, with a little work, could be perfect for you.
Set a budget, then determine if you are willing to go over that budget in case you get into a bidding war. Set a certain percentage that you are willing to go above your ideal price and then stick to it.
You should also be prepared financially. If you need to finance your home purchase, get a pre-approval letter from a mortgage lender. Sellers take pre-approval letter offers more seriously.
Finally, you shouldn’t feel rushed to buy a home or overpay for a home just because you think you have no other option. Some buyers who bought houses this year for fear of missing out are already regretting it.
“When you have all of your ducks in a row, you can be strong with your offerings and set expectations,” said Kevin Kurland, president of brokerage at Choice NY.
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