It’s The Market It’s Not You

Are You In a Bad Relationship With The Real Estate Market?

Have you ever gotten rejected by someone you liked and wanted to get to know better and maybe even have a relationship with? I think everyone has gone through this or can at least relate to what the rejection feels like.

In some ways, that’s what the current real estate market can feel like to some people. You’re in the market for a home and you see one that you love but do you dare make a move and risk rejection?

You’ve heard the stories about how much of a dog-eat-dog world it is when trying to buy a home but what can you do? If you truly want a home you push forward all the while keeping in mind that if it doesn’t work out it’s not you, it’s the market.

Even if you have trouble in the beginning you’ve got to remember that there is a house out there for you but you’ll never find it if you quit trying.

Knowing what the problem is is half the answer to figuring out what to do. Today I’m going to share with you the top reasons for losing the house of your dreams in today’s crazy market.

6 Things That Are Keeping You From The Home That You Love

1) Competition- The number of people wanting to buy a house compared to the number of houses available for sale has definitely increased over the past 12 months. Low-interest rates have helped people to get off the fence about buying.

The increase in buyers and declining inventory of homes has made it a lopsided market. This has increased competition among buyers and resulted in offers way over list price.

A good metric to see this is the months of inventory, also known as the absorption rate. It is a measure of the existing inventory of homes and rate of sale, or demand.

When there are 4-6 months of inventory it is considered a balanced market. Anything less than this would be a seller’s market because there is not enough inventory to satisfy demand and anything more than 7 months would be a buyer’s market because there is too much inventory.

We are currently in a seller’s market. The following graph shows supply vs demand in the Birmingham area.

As you can see, supply is dropping and demand is continuing to increase. This means that competition between buyers for the limited inventory is red hot.

2) You Don’t Have Enough Money- While not true for every sale, there are transactions where a home might go under contract for an amount significantly over the list price. Some of these sales are not based on reality but on the fear of losing out.

Many buyers have lost out on other homes they have tried to purchase and they don’t want that to happen again so they offer a price way over the listed amount. What happens if the home does not appraise?

In situations like these most buyers will have to come out of pocket with the difference between the contract price and appraisal value. If they don’t have enough money to do this they cannot consummate the deal.

It’s a good idea to plan ahead and know how much money you have in case you need to do this.

3) Your Love Letter Wasn’t Good Enough- A tactic some real estate agents use to help their buyers stand out is the love letter. It is a letter meant to appeal to sellers to help a buyer’s offer be accepted when there are multiple offers.

With competition being as hot as it is it’s easy to see that some of these letters may be over the top. Some buyers are even putting together videos to up the ante and tug at the heartstrings of sellers.

If you are going to do this it would probably be a good idea to find out the best way to do it so that it does not violate any fair housing guidelines. You want to make sure you do not reveal certain information that could be used by the seller to accept or reject an offer based on race, religion, or familial status.

It is a good idea to talk with your agent about fair housing laws to determine if you should use this tactic.

4) You Waited Too Long- While I am not a real estate agent I have read stories about buyers not being prepared to pounce on a home when they see one they really like. In the past, buyers had the luxury of pondering for a couple of days on what they should do after seeing a home that they think they might want to buy.

If you go into the home buying process with this mindset you may be disappointed. Most buyers are now prepared to make an offer on the spot or else risk losing the home of their dreams.

Many agents would recommend that buyers have their financing lined up and know ahead of time what they can offer. They should also know how much over list price they can offer as well as how much money they would need to make up the difference should it not appraise.

5) People aren’t willing to let go- Part of the problem of not being able to find the home that you love is that there just aren’t that many homes to choose from. It goes back to the fact that inventory levels are at the lowest point that we have seen in a very long time.

Housing inventory levels grow when there is adequate new construction and/or sellers are willing to sell. What’s running through a lot of potential seller’s minds is that they may not be able to buy something better than they have due to the lack of inventory and the current elevated price levels.

A lot of homeowners are holding on to what they have until the market cools, however, this does not help the current inventory situation. One other possible scenario that I’ve heard is that people have not wanted to move or put their home on the market in the middle of a pandemic. Hopefully, this may change as COVID 19 infection rates continue to drop and more people get their vaccines.

The graph above shows that listings are currently less than half of what they were in 2015.

6) Standards Are Too High- One thing that is different in the current real estate market compared to the time just before the last crash is that the credit standards appear to be a lot higher. If you are credit challenged you may have a problem financing a home.

If you find yourself in this situation there are some things you can do to help. In the Birmingham area, the Association of Realtors recently launched a Home Ownership Initiative to help low to moderate-income families restore their credit and provide them with resources to help in purchasing a home.

In addition to the above, the Alabama Housing Finance Authority recently held a virtual Spring Homeownership Forum to assist Alabamians in purchasing a home and I was honored to be a part of it.

You can watch the full conference by going to their website and you can watch my portion by viewing the video below. Pardon the technical difficulties at the beginning. This was the first time I had shared a slideshow in a Zoom meeting. I hope you get some value out of it.

Conclusion

Do you have anything else to add or advice for anyone seeking to find the home of their dreams? Leave a comment below so we can keep the conversation going. As always thanks for reading.

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