By Matt Pfrommer, Princeton Mortgage Wholesale
As I look out the window and see snow everywhere, it’s hard to believe that spring has sprung and the housing market is bracing for the busy season (if not another nor’easter). Everyone waits in anticipation for the influx of loan applications and chaos that ensues throughout the summer, but what are the homebuyers thinking? According to this article, over 1,000 active homebuyers were surveyed and they may be ahead of the game as the weather breaks (or doesn’t).
Almost 6 years ago, when looking for my own house, I casually reviewed Zillow and other online sites and found my house in around 2-3 months. Today’s survey results show that almost 75% of active homebuyers are taking more than 3 months to find a home and 40% are taking more than 7 months! Competition is stiff for buyers, and it is only going to get harder. NAR chief economist Lawrence Yun says that housing inventories are up almost 5% from January, but down over 8% from the same time last year. Properties were on the market for an average of 37 days in February, down from 41 in January and 45 last year. Home listings are going like hotcakes and buyers are in steep competition to win the seller over. The survey reports that 40% of respondents plan to put more than 20% down, 31% are offering a larger earnest money deposit, and 26% are willing to go over asking price to get the house they want. Homebuyers will have to run the gauntlet of other buyers before they can negotiate the terms with the seller and it is becoming more difficult for homebuyers to win bids if they do not have a strong offer.
If buying a house in this market requires a larger down payment, larger EMD (Earnest Money Deposit), and higher purchase price, how will renters save up the extra funds for a strong offer when rent is also rising? According to Zillow, median rent in the US rose 2.8% over the past year to $1,445, the fastest increase since May 2016. Senior Zillow economist Aaron Terrazas said "For-sale inventory is tight, and with home prices continuing their rapid climb, it's becoming more and more difficult for renters to become owners, forcing them to rent longer than they otherwise would have.” If you haven’t noticed, mortgage rates are also on the rise, pushing the limits of homebuyer budgets even further. With the FED looking to raise the rates twice more this year and even more in 2019, it will be very difficult for new homebuyers to stretch their budgets to meet the expectations of sellers and beat the rest of the field for their dream house.
The housing market must be reaching a breaking point as the cost of living is increasing for both renters and buyers. The natural flow for most buyers is to rent until they save enough for a down payment and then buy their first home to upgrade from there. With the buying market so tough, homeowners cannot move out of their starter homes and make room for renters to take their place, so the natural flow is all out of whack. How will the market correct itself as we start to see bottlenecks in the natural flow? I am not sure but am excited to see how this plays out. Hopefully, the winter snow will melt away soon and give way to a booming housing market for the summer.
Photo by Christian Koch on Unsplash
The opinions expressed in this post are the sole view of the writer and do not reflect the opinion of Princeton Mortgage Corporation.