While the American dream seems to be under renovation these days, homeownership is still a staple wish for most. Some want a cozy cottage, while others think about extravagant estates. But for many, this idea seems difficult to reach. While the real estate market experiences plenty of activity, prices are high for prospective homebuyers. Whether it’s your first home or just a place to settle down for a couple of years, here are a few things you may want to know to win in the current housing market.
WHY IS THE HOUSING MARKET SO COMPETITIVE?
The answer is simple: supply and demand. Currently, the U.S. real estate market is a seller’s market. Essentially, that means that there is more demand to buy houses than there are houses to sell. According to a February 2021 report from Black Knight, an analytics and software company in the mortgage industry, housing inventory in the U.S. is down 40% compared to last year at the same time. New listing volumes are also down, with a 21% decrease at the time of the data report.
This kind of situation puts the ball in the home seller’s corner. So, they allow competition to drive up the asking price, leading to higher bids on the home.
WHY ARE HOME PRICES SO HIGH?
The seller’s market does affect price, but it’s not the only factor. In addition to higher asking prices, there are also shortages sweeping through construction and jobs related to real estate. Foremost is a lack of available labor. The Home Builders Institute (HBI)’s recent Construction Labor Market Report details a shortage of over 200,000 workers in the construction industry since the beginning of 2021. Since there is a lack of people with the skills in that sphere, it is more expensive to hire crews. Plus, it means jobs take longer to accomplish, which also hikes up the price.
On top of that, there is also a shortage of building materials. Because of this lack of materials, costs are soaring on various items like glass, copper, and, most importantly, lumber. Once again, where there is not enough of something to meet demand, it forces prices to increase. The National Association of Home Builders (NAHB) found this year’s lumber prices soared over 180% compared to 2020’s spring. However, you may wonder how higher lumber prices affect your future home’s costs.
Well, the NAHB also determined that a new single-family home increased by $24,386 in price on average as a direct result. And both of the above shortages are extending building plans for new homes and renovations for existing ones. Unfortunately, that’s also setting homebuyers up for sticker shock as inventory drops.
HOW CAN I GET MY HOME OFFER ACCEPTED?
While the market can burn you if you’re not careful, there are steps you can take to improve your chances.
- Make a map. Before you truly begin to search, it’s essential to sit down and ask yourself what you want versus what you need. It should detail the criteria you have in mind that you can’t compromise on. If you are moving with a spouse or partner, come up with a composite list of these. It’s also vital to talk through your price limits at this point and ensure you are both on the same page.
- Partner with an agent you trust. Once you know the type of house you’re looking for, your best ally will be a competent real estate agent. They should know the criteria you are working with and help you through the buying process. Generally, they also take on the position of liaison which can be valuable during the negotiation phase.
- Get pre-approval for a loan. You can get pre-approved by your mortgage lender ahead of time. Essentially, they look over your financial situation and history and decide whether you can obtain a loan within a specific time frame. This fast tracks you in the eyes of your seller, who views you as a perfect candidate for a quick close.