July 2020 – It’s no secret that being a home buyer over the last few years, especially the winter and spring has been very stressful for many and not very rewarding for some. Recently due to COVID-19 pulling inventory way down, bidding wars have been even more rampant. Sellers took a long pause on listing their homes due to the Coronavirus crisis back in late March and April. Some still haven’t listed out of fear of having strangers in their home. Now the newest fear stopping many from listing is that their homes could sell before they found a new home to buy. May of 2020 exhibited a 36% decrease in the number of homes listed and April was even worse with new listings being down over 50% when compared to the same time in 2019. Buyers are competing heavily for what is available on the market. This can be very frustrating for buyers as many have made offers on multiple homes and not been able to obtain them.
As it was, the year began with the lowest inventory recorded and when the stay at home mandates were implemented, inventory plummeted further as you can see in April in the chart below. Inventory has been climbing back up, albeit slowly, but its been consumed by buyers faster than sellers can keep up with.
This line graph shows the inventory of homes listed every week since January from 2017 to 2020.
Buyers have become filled with all kinds of mixed emotions and questions about the current market and what that means for those hoping to buy a new home. At the beginning of spring everyone had to be reassured that the market wouldn’t experience an outcome similar to 2008, but because it’s doing opposite things, buyers are back to the normal concerns they’d have in this situation, similar to this gentleman below.
Sound familiar? This is how many buyers feel and it is understandable to feel this way. It can be extremely discouraging to make an offer on a home that ends up being rejected or topped by another buyer. Giving up seems to be the next logical step if this happens a few times, but do not get discouraged.
Why does this happen?
This happens because of the simple function of supply and demand. The reality is every single winter and early spring there are more home buyers out looking to buy than there are sellers listing their homes for sale. Inventory is normally at its lowest point in the winter which is why we have said that Listing in the winter makes you the most money– since it’s a seller’s market. But as you can see below, no matter how many homes are listed, buyers are consuming them at a higher rate than ever before.
The chart below shows the weekly percent of inventory placed under agreement. This year began higher than the previous years, nosedived in March due to COVID-19 and then in the opposite extreme, skyrocketed ever since. Buyers are consuming the inventory faster than ever.
More Buyers than Sellers
Typically, there are substantially more people looking for homes to buy during the winter and early spring with far fewer people looking to sell. This year, this phenomenon has continued to summer due to COVID-19 putting a hole in the spring and pushing everything out. Bidding wars ensue as prospective buyers battle over the available homes on the market, the supply goes down and the demand goes up.
When will this imbalance end?
Considering that the year began with lower inventory than ever recorded as you can see in the chart above before the Coronavirus decimated the typical seller rush to list in spring. We are likely to see an imbalanced market at least until fall but likely until next summer of 2021.
However, as the summer goes on it should ease up somewhat and it will definitely ease up come fall. Inventory should increase with each passing week and the number of buyers should begin to lessen as they find homes or give up and sign leases for another year. Buyers must remember that the competition is the other buyers. There will be less competition as other buyers find homes and as more sellers list now that they’re more comfortable that they can do so safely.
If you look closely at the line graph below, you will understand why bidding wars always slow down by summer and are infrequent in the fall. When buyers have more choices and fewer buyers to compete with, homes take a little longer to sell, and the likelihood of bidding wars decreases.
This graph clearly shows how the market transitions from a sellers’ market to a buyers’ market as the year goes on. This graphic shows a later transition than normal, but that’s because market trends are delayed this year due to COVID-19.
Are fewer homes being listed?
The quick answer is YES! There were 48,020 homes listed from January 1, 2020 to June 30, 2020 compared to 59,528 at the exact same time last year. This represents a decrease of over 19%. Despite the decrease in homes listed this year compared to last, many homes have still in fact been listed which comes as a surprise to many. The number of buyers outweighs the number of available homes, but that doesn’t negate the fact that over 48,000 homes have been listed in the past six months in Massachusetts alone.
To stay up to date on how the Massachusetts market is performing, click here. Click here for New Hampshire.
This housing market resembles the game of PAC-man; homes are being eaten up as fast (and some weeks faster) as they are being listed.
What should a buyer do?
The first thing a buyer needs to do is to make sure they have hired a Realtor who is working diligently with them to navigate this type of market. Buyers have a lot of prep work to do before they are ready to make the strongest offer to win a bidding war. Hiring the right team to back them is the first step. The best thing a buyer can do from there is to continue to look, try to have some patience, and be ready to strike without wasting any time when the right house pops up. It helps to find a Realtor from a brokerage who can provide you with all the homes for sale as they are listed without delay- some even before they are listed. If a buyer sees a great house come up at a good price, they will not be the only one who feels this way. It is essential that the offer is written correctly to be the strongest that the seller receives. Following our Tips to Winning a Bidding War blog will help.
Now to quickly answer all those questions and concerns from above:
Will it be like this forever? – No, the bidding wars will slow down by fall and will be less typical in the winter, when it will be the best time of this year to buy a home due to the higher amounts of inventory which will make it more of a buyer’s market.
Will I ever land a home? – Yes, if you keep trying, eventually it will work out. You just need to be patient during the buying process and be ready to make the strongest offer possible.
Maybe I need a new Realtor? – This may be true. If you have an agent who isn’t providing you with tools to make you the strongest option for a seller nor bringing every home that becomes available to your attention, you may need a new one.
Maybe I should give up and sign a lease for another year or two? – In normal years we would say this is a terrible idea. But if your time to notify your landlord is running out and you just aren’t finding a home you may have to. But don’t be fooled into thinking that next spring won’t be competitive as well.
Will I just have to overpay? – A home is only worth what a buyer is willing to pay. If you and other buyers are willing to pay a certain amount, then it is worth it!
Why isn’t anyone listing their homes for sale? – People are listing their homes for sale, but so far this spring the homes are selling as fast as they are being listed. This year sellers held off in the spring due to concerns regarding the virus, but that’s slowly alleviating.
Is this another housing bubble? – Anything is possible, but it is highly unlikely as this boom doesn’t compare to the last one. Everyone could get a mortgage years ago, but that is no longer the case. When the market crashed in 2008, there were more than 45,000 homes for sale in Massachusetts alone and that is why the market tipped over. Right now, there are approximately 12,000 homes for sale. Furthermore, prices over the last few years in Massachusetts and New Hampshire have only gone up about 5% per year. That is nothing like the bubble of years ago.
Maybe this is a sign that I shouldn’t be buying? – The real estate market’s supply and demand imbalance all over the country is not a sign to one buyer that they should not buy. We live in a land of free and open markets. The market is hot right now and it is a sellers’ market. If you want to own, you must be patient and diligent.
Will my town still hold its value in 5 years? – Real Estate is locally focused so if something major changes in a specific town, then anything is possible. Generally speaking, it is highly unlikely that values won’t hold in the years to come.