When the spring months roll around, the temperature isn't the only thing that increases. Spring is also usually the busiest time for home sales, but that could change this year if the country’s inventory remains low. Just how low is it?
According to the National Association of Realtors, the supply of existing homes for sale has fallen for 7 straight months, and almost hit an eight-year low in January. The lack of homes has led to competing offers and bidding wars in many areas, and much of the country is now classified as a seller's market. Experts say the higher prices should encourage more homeowners to list their homes, but warn that it could take years before inventory levels are healthy and markets are balanced again.
So why is there such a shortage of homes for sale, and how will it affect spring home buyers?
First, most of the distressed properties that flooded the market a few years ago have already been purchased. “Traditional” buyers looking for a bargain and investors hoping to make a long-term profit swooped in and purchased most of the foreclosures and short sales that littered the housing market in recent years.
Secondly, lenders still have very strict underwriting guidelines. Interest rates remain near all-time lows, prompting many would-be buyers to apply for a mortgage. The problem is that many of these same people don't have the credit report or down payment necessary, and thus, are being denied for a loan.
Then, you also have to take into account the millions of homeowners who have little or no equity in their homes and simply can't afford to sell. These homeowners purchased their homes at the peak of the housing bubble, and have watched their property's value drop significantly over time after the bubble burst. The end result? Underwater borrowers who owe more on their home than it's worth. These elements have created somewhat of a perfect storm, and prospective buyers are the ones paying the price – literally.
In January, the number of homes listed for sale was down almost 17% from the same month the previous year in 146 major markets. Even homeowners who can afford to sell are apprehensive to list their properties because home prices have just recently started to rise. Many have wanted to sell for some time now, but had to hold on while prices dropped during the recession. Now that prices are rising, these homeowners want to see how high they'll go before listing their homes. All of this has led to an extreme shortage of inventory. The nation now has a 4.2-month supply of existing homes for sale. That means at the current sales rate, all of the homes on the market today would sell in less than 5 months. Realtors define a healthy market as a 6-to-7 month supply, but experts don't expect that to happen until prices rise another 20%.
Home listings increased nationwide in February, but not enough to meet demand. Buyers are literally waiting for homes to be listed, and are sometimes making an offer the same day a home goes on the market. Realtors say it's not uncommon for some sellers to receive more than 5 offers on their home from competing buyers less than a week after they've listed the property. In other words, if you want to buy a home this spring, you better be prepared to face stiff competition, and you need to have the money to outbid the other prospective buyers. Otherwise, you could wind up waiting for quite awhile to get your hands on one!
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