Affordable starter homes for first-time buyers are in great demand this year, leading to shrinking inventories. Fewer homes to choose from means that buyers’ options are limited. This leads to increased competition for those homes that are available, spurring bidding wars and pricing out entry-level buyers.
A recent analysis by Zillow found that there were 8.6 percent fewer homes on the market in January 2016 than a year ago. Sellers have more negotiating power in competitive cities, mostly in the West, where job markets are hot, and demand for housing is heavy.
Buyers competing in a tight market must be prepared. They should get pre-approved for a mortgage and know their maximum price before house shopping so they can make a competitive offer. They should also take another look at their must-have list and decide where they’re willing to compromise, if necessary.
Here are five surefire signs that you are facing a competitive market for buyers.
1. Short time on market.
The fastest and easiest way to tell if sales are hot in your local market is to measure how quickly properties in your price range are selling. You can get a sense of the demand by simply tracking listings on real estate web sites.
A more accurate method is to review “median days on market” data from your local multiple listing service. You may not be able to access this data yourself, but your real estate agent should be able to get it for you. Look at the monthly and the year to year trends for the Zip codes where you are looking. If houses are selling in three months, that is clearly a seller’s market; in two months or less, you are probably looking at a hot, competitive market.
Another measure of demand is called “months’ supply.” It represents the number of months for the current inventory available for sale at the current rate of demand. A months’ supply of six months is considered balanced; the smaller the months’ supply, the hotter the market.
2. Jumps in sales.
An easy way to take your market’s temperature is to compare the current monthly sales rate to one or two years previous. Sales vary seasonally, but not over 5 percent when compared to the same month a year earlier.
If you see sales jump 10 percent or more, your market is taking off, and inventories may not be keeping up with demand, which is going to make it competitive for buyers. Follow local data on Zip codes or neighborhoods available on real estate listing sites, or ask your agent for information on sales trends.
3. List-to-price ratio.
When homes start selling at prices higher than their listing prices, it is a sure bet you are in a competitive market. If the list-to-price ratio is above 100%, the home sold for more than the list price. If it is less than 100%, the home sold for less than the list price.
MLSs make this statistic available to their members on a monthly basis, so you can get the data from your agent. Some also release it publicly. Some real estate web sites report local list-to-price ratios.
4. Deadlines on offers.
When sellers start placing deadlines for offers on their listings, obviously they are expecting more than one bid and they see no reason to extend the selling period. When you see a listing with deadlines, prepare for battle if you want the house.
5. Cash offers.
Cash offers, as opposed to offers financed by mortgages, are very attractive to sellers because they do not have to take the chance that a buyer’s financing will fall through or that an appraisal will come in low, and the seller might be asked to lower the price to save the deal.
In lower tier price ranges, many cash offers come from investors who are planning to flip the house or convert it into a rental. An increase in cash offers are a sign that competition is stiff. MLSs compile data on cash sales in local communities and Zip codes and you can get the information from your agent.
Soaring sales, prices above list, days on the market below two months, months’ supply below four months, cut-off dates—these are signs that buyers will likely face multi-bid situations. Be ready to move fast with the best offer you can make and be patient if the right deal takes months to appear. Even so, never bid on a house you do not like—you might end up living in it for many years to come.
from Total Mortgage Underwritings Blog http://ift.tt/2bLTnwF
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