HomeCoaster

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Why is the Housing Inventory low?

Hey HomeCoaster's!

The other day my ears naturally tuned in when I overheard a conversation about real estate. A man was discussing how his parent's have a property that they would prefer to sell, but are just sitting on it because the market is 'so bad right now' that there is no point in trying. His parent's were not living there anymore, had already moved to their downsized home, and just have this property sitting and waiting for the right time to sell. 

As a real estate professional, this really concerned me! I realized that the public perception may be misguided and that it is critical to tune everyone in. I want to take a moment to help everyone understand the current state of the market so that each homeowner/home buyer can make educated decisions on what is best for them and their personal situation.

Supply (houses) and Demand (buyers)

Many agents are jumping up and down doing a 'rain dance' trying to encourage those who are considering selling their homes to get in the game! Inventory is currently (2017/2018) low across the country, but buyers are out in full force. This makes the real estate market very unbalanced.

Most are familiar with the basic economic concept of supply and demand. A balanced economy is when there is sufficient supply to meet the demand. In real estate, the supply is the properties for sale. The demand is the buyers.

When the supply (number of properties for sale) is higher than the demand (number of buyers), it is considered a buyers market. This is because the buyers have more to choose from, which means less competition when they find a house they are interested in. In a buyers market, the sellers are the ones competing for the buyers attention and must be more flexible with price, contingencies, and concessions.

When the supply (number of properties for sale) is lower than the demand (number of buyers), it is considered a sellers market. This is because with limited homes for sale, the buyers are now competing against each other. This can result in bidding wars (possibly driving prices above asking) and quick sales for home sellers. In a sellers market, buyers are forced to put their best offer on the table up front. They also need to act quickly if they want to compete.

Properties that meet the 3 key factors of price, condition, and location will not be likely to sit around very long. Buyers need to be vigilant about when new listings hit the market, schedule showings quickly, and get their offer in.

This is the current situation (2017/2018) in many areas across the US, including the greater Philadelphia and South New Jersey regions in which I serve.

Why is the inventory low?

People buy and sell houses for so many different reasons. Marriage, divorce, growing families, new jobs, retirement... real estate happens when life happens! Life hasn't slowed down and the buyers keep building up. So why have people stopped selling?

There are multiple factors that have contributed to homeowners choosing to sit tight today instead of choosing to sell. I think it's important to quickly summarize a few of the reasons why the market shifted so far into a sellers market.

1. We have seen some historically low mortgage rates over the past few years! This means that people who purchased their homes with a low interest rate on their mortgage are sitting comfy in a favorable financial situation and are unlikely to want to move.

2. We have also seen a pretty steady climb in property values over recent years. Although experts believe this will begin to slow and level out, many homeowners are gambling and waiting for the peak before selling. 

3. Many are still recovering from the market crash. Those homeowners who purchased their homes at inflated prices are now feeling stuck. When the market crashed, so did property values. Selling could mean those homeowners who would lose money and therefore are simply waiting until it financially makes sense for them again. 

4. Some homeowners that are ready to move are nervous to put their home on the market knowing that it is a sellers market. Why? Because sellers become buyers. They are afraid of selling quickly and then jumping into the competition with all the buyers and being left without a home! 


If you have been considering selling your home, GREAT! Low inventory means it is a SELLERS MARKET and is a fantastic time to sell. You should discuss with your Realtor and consider the three main factors in selling a home:

Price, Condition, Location

Even with the low inventory, not every home that lists will sell! If you are exploring the idea of selling your property, you must first take a moment of home reflection! Homes in good condition, set in a desirable location, and priced correctly are most likely to sell quickly.

1. Price - It is critical that sellers be smart! Don't try to take advantage of the market and overprice your property in hopes of increasing your profit.

Buyer's agents will be doing their homework and guiding their client on a property's market value. If a property is overpriced, a seller sets themselves up for a few risks.

Interested buyers may not feel comfortable presenting any offer at all if they feel their true market value offer will not be considered. Also, an overpriced property misses out on all those buyers in the proper price bracket because it does not pop up within their search parameters. Then, the longer a home sits at the incorrect price, the more buyers begin to wonder what is wrong with the house!

Overpriced properties often end up selling BELOW market value.

I could go on forever about why pricing your home correctly from day one is so important, but I'll save it for another post! Just understand that properly priced homes in a sellers market have the potential to sell fast!

2. Condition - It is not always financially possible to tackle remodeling projects to have your home attract the 'HGTV buyers'. However, there are a number of projects that are affordable that absolutely should happen before listing the property. 

Rely on your real estate agent, or a home staging professional to give you some guidance on how to spruce the home up to maximize it's appeal. Buyers want to purchase a well maintained property. Many can overlook the need for cosmetic upgrades if the structure and systems of the home have been well cared for. 

3. Location - This one is out of the sellers control (other than when they made their purchase of course), but just be mindful of the fact that homes in desirable locations will sell faster. Imagine two properties in the same neighborhood that are similar in size, style, and condition. One sits on a quiet street overlooking a beautiful park. The other is on a busy street and backs up to the train tracks. Which one will sell faster? Which one will sell for the higher price tag?

Summary

The market is not balanced right now (2017/2018), but that does not necessarily equate to it being a 'bad market'. Supply and demand is a balancing act and is constantly swaying back and forth. At the moment we are working with a low inventory and a high demand, which can create a challenge for house hunters.

Although it is considered a sellers market, there is no guarantee that every home that lists will sell. However, the opportunity to sell close to (sometimes over) asking price, in a relatively short period of time, is good right now. So if you have a property you have been considering selling... go ahead and list it!

Buyers should not be discouraged! Although there are many who are struggling to land their dream home because of the slim pickings and strong competition, you have to stay positive. Stay educated about the local market you are hunting in. Trust your agent. Game face on!

Stay tuned for the next post: 'Tips for Buying in a Sellers Market'.

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