The extremely low inventory of homes for sale is reminiscent of 2006 and is wreaking havoc for buyers, sellers and Realtors. The situation is the most extreme in the lower price ranges and remains challenging up to the $800,000 price range.
By listing price range, the months of inventory is as follows (does not include new homes):
$200,000-$399,999 – 1 month
$400,000-$599,999 – 1.5 months
$600,000-$799,999 – 2 months
$800,000-$999,999 – 3.5 months
$1,000,000 plus – 13 months
This means that the homes that show well and are correctly priced are attracting multiple offers above listing price, putting huge pressure on buyers to stretch their budgets and liquidity. It’s also leading to disappointment as even contracts for listing price are losing out to other more aggressive offers.
You would think the flip side to this would be a windfall for sellers, but that’s not always the case. Unless a buyer has lots of cash on hand, which is not the norm, especially at the lower price ranges, the property needs to appraise for the price in the contract or the mortgage terms can change. Appraisers have yet to catch up to the current market conditions and are generally not reflecting the low supply in appraised market values. If a buyer does not have the cash to offset a reduction in the mortgage proceeds due to a lower appraisal, the seller ends up compromising on the price or needing to start over with a new buyer.
More than ever, buyers and sellers need experienced Realtors to help them navigate these waters, yet we are somewhat stuck in the middle ourselves. We don’t want our buyers to stretch too much, but we also don’t want them to lose the home they want to buy. As listing agents, we’re negotiating great sale prices for our sellers, only to have the appraisal not support that price. It’s a constantly changing environment so critical to have experienced professionals on all sides.
The exception to this new normal is the market for homes above $1,000,000 (actually above $900,000). Inventory for these homes still exceeds a full year. ON a day when a house listed for $400,000 gets 17 buyers to an open house, one listed at $950,000 attracts only one potential buyer. Unlike in 2006, when sellers were pulling several hundred thousand dollars out of an existing home and putting it down on a home they otherwise couldn’t afford, those seller’s don’t have as much equity in their current homes. Prices doubled in 4-5 years in the early 2000s generating that huge cashing out and demand for expensive homes. The market imbalance will need to continue for a few consecutive years before the luxury market gets as hot as it was ten years ago.