Limited inventory and a very strong demand for housing has created an environment where bidding wars are commonplace in today’s real estate market. Homes priced properly are getting multiple offers within a short time of coming to market. This brings about a dilemma for real estate professionals: How should we advise our client who is about to make an offer when other offers will also be presented?
Over the last several years, there wasn’t any pressure on the buyer to adjust their offer for three reasons:
- There were plenty of homes for sale
- Prices were falling
- Mortgage interest rates were falling
They buyer could find another home easily for probably less money and a lower mortgage rate. There was no downside to not ‘upping the ante’. However, in today’s market, things have dramatically changed.
HOUSING INVENTORY
A normal real estate market has between 5-6 months worth of inventory. Over the last several years, the inventory of homes for sale had skyrocketed to 10 months. Most buyers in almost any price range had a multitude of houses to choose from. Today, the national month’s supply of inventory has fallen below five months. In many markets, there is not enough housing inventory to satisfy the current demand.
Conclusion: If the buyer loses the house they are bidding on, there is no guarantee they will find a similar home anytime soon.
HOME PRICES
Because of the limited inventory, home prices are again appreciating. The Case Shiller Pricing Index revealed that house prices rose by 6.8% in 2012. Experts are projecting home prices to increase by 5% to 8% in 2013.
Conclusion: If the buyer doesn’t get this house, there is a good likelihood that a similar home will cost more in the future.
MORTGAGE RATES
The ‘cost’ of a home to a buyer is determined by the price of the house and the expense associated with the financing. Mortgage rates are projected to inch up in 2013. In a recent forecast, the Mortgage Bankers Association predicted that rates could climb as high as 4.3% by the end of the year.
Conclusion: If interest rates do inch up, the ‘cost’ of the next home could be impacted significantly.
Bottom Line
If a buyer truly loves the house they are bidding on, it probably makes sense to raise their bid now instead of waiting for another dream house to appear.
Adapted from the KCM Blog on March 28, 2013
Inspired by my recent green certified listing, I was moved to share more information relating to the topic of “living green”. Believe it or not, smart financing can help the environment. Beyond the paperless mortgage that can save trees, I am talking about two loan products that can finance energy efficient improvements to your home. And both can be done at time of acquisition or during a refinance. First, we have the tried and true FHA 203K which will finance homes and their renovations up to the local FHA loan limit. In terms of green mortgaging, I have seen borrowers finance $50,000 solar heating and electrical systems and geo-thermal heating and cooling systems which enable homeowners to slash their energy costs and usage. Besides saving the earth’s resources, over time, customers save money. It’s a win/win. But today, I want to highlight a smaller loan that has been around for a few years, but rarely utilized. It’s called the EEM (Energy Efficient Mortgage). Some of the highlights are: It is available as an add-on to VA and FHA loan products, including 203K, for home purchases and refinances. It allows a borrower to get an additional 5% of the home price (capped at $8,000 for FHA and $6,000 for VA loans) to finance energy efficient improvements. The beauty of the additional funds is that the additional debt incurred in your monthly payment is excluded from your qualifying ratios. The logic is that what will be saved in electric/heating costs will be more than the increased mortgage payment. Logistically, your lender will require an independent certification of projected savings prior to closing, and they will hold the monies in escrow, until the work is completed and inspected. Otherwise, it is a fairly simple program that doesn’t alter your required documents or qualifications. Some of the more typical uses for the money are: replacement windows and doors, increased insulation, upgraded oil burner, conversion to gas heat, central air, sun lights, small solar panels, even energy saving appliances. Talk to your lender today about the ability to upgrade your home, while benefiting the environment, at the lowest possible interest rates. You’ll be glad you did!
Maria Kadau, Realtor - Tampa Bay 