Yesterday, I wrote about the shrinking housing inventory in the U.S., and how it will make things harder for home buyers. Total real estate listings have declined in 137 of the 146 metro areas tracked by Realtor.com. In many parts of the country, for-sale inventory has dropped by 25% or more over the last year.
“Buyer traffic is 40% above a year ago, so there is plenty of demand but insufficient inventory,” said Lawrence Yun, chief economist for the National Association of Realtors. “We’ve transitioned into a seller’s market in much of the country.”
Yesterday’s story presented a problem for home buyers. Today’s story offers a solution.
How to Find a House in a Shrinking Real Estate Market
Inventory is down and competition is rising. And the housing market will only heat up as we move into the summer months. What’s a home buyer to do? Here are seven tips to help you find a house in a shrinking market.
1. Get a real estate agent.
Real estate agents have access to the Multiple Listing Service, or MLS. This is one of the best tools you can use to find a house, due to its comprehensive nature. Almost all homes listed for sale end up on the MLS. And you can narrow the property listings based on certain criteria, such as location and square footage.
Set up automated searches and alerts based on your desired housing parameters. Your agent should be able to do this for you. Realtor.com also allows you to set up certain alerts and notifications. The goal here is to stay on top of the market and to spot potential homes as soon as they become available. This is the key to finding a house in a fast-moving market with many competing buyers.
Know where to find homes that match your price and other criteria. Which part of the city offers the type of home you are looking for, within your budget? You should know this before you enter the market. There is no point driving around a $300,000-and-up neighborhood when your budget is $200,000. It’s a time waster.
2. Know your housing budget.
You should have some idea how much you can afford before you start house hunting. This goes hand-in-hand with the mortgage pre-approval process, if you happen to be using a mortgage to buy a house. Having a budget will narrow the market, save you time, and help you find a suitable house more quickly. Not having a budget will cause you to waste time by shopping in areas that are too expensive.
3. Use the “big 3” real estate listing websites.
Don’t limit yourself to just one real estate listing website. You’ll be better able to find a house if you use multiple sites. You should be using Realtor.com, Trulia.com and Zillow.com.
In many cases, you’ll find the same houses listed on all three sites. But some homeowners and real estate agents prefer one listing website over another, for whatever reason. So there is a chance you will find a particular property on one of these websites, but not on the other two. Use all three of them to cover your bases. After all, they’re free to use.
4. Study your local real estate market.
Go to one of the property listing websites mentioned earlier and look at sale prices in different parts of town. We’re not talking about listing prices here, but the actual price at which homes are sold. Note the specific qualities and features of each home, particularly those in your desired area. This will help you make smarter offers based on real data.
In a shrinking housing market, you are competing with more buyers for fewer properties. Low-ball offers have no place in such a market.
5. Make a realistic offer backed by data.
This is an extension of item #4 above. Many local housing markets are currently transitioning from a buyers’ market to a sellers’ market. The trend began in California and various southwestern cities, and is now spreading eastward.
In a sellers’ market, it is crucial for buyers to make realistic offers based on actual sales data. Sellers typically get more than one offer in these types of markets. If yours is the lowest in the bunch, it will almost certainly be tossed aside. Remember, sellers want to get the most money for their homes. That is their number-one priority. So you need to be aggressive and competitive, within reason.
Find a house that meets your needs, determine its market value by using recent sales data, and make a reasonable offer.
6. Don’t dwell on the one that got away.
There is a good chance one or more homes will slip through your fingers during the house-hunting process. The chances of this happening are even higher in a hot seller’s market.
The San Francisco Chronicle recently did a story about a young couple who made offers on more than 20 homes, all of which were turned down in favor of other buyers. Granted, they admitted to making low-ball offers in the early stages of the process (thereby violating rule #5 above). But even when they started making more competitive offers, they still had a few homes slip away.
This is a common scenario in a shrinking housing market. When more buyers compete for limited inventory, some of them will simply miss the boat. The key is not to be overly discouraged.
It’s common for first-time home buyers to fixate on a certain property, believing it to be their “dream home.” But having been through this process many times, I can assure you there is always another house around the corner. And it might be even better suited for you than the one that got away. You’ll find the right house eventually. Remember, it’s a process.
7. Don’t haggle over nickels and dimes.
Home buyers often let their emotions get in the way during the negotiating process. The buyer makes an initial offer. The seller counters with a lower amount. And the home buyer feels slighted. When emotions take over, mistakes are made. If you take things personally, you are more likely to haggle over “nickels and dimes.”
Think about the big picture. Consider the difference in monthly mortgage payments between the amount you are offering, and the amount at which the seller is countering. A difference of $5,000 in the asking price may only change your monthly mortgage payment by $20. Keep it in perspective.
Ask yourself two questions:
- Do current market conditions indicate the home is truly worth what the seller is asking?
- Do I want this home bad enough to pay a few dollars more per month?
If you answer yes to both questions, find common ground with the seller and get the deal done.
In a shrinking real estate market, sellers have an increasing amount of leverage. In a strong seller’s market, they have all the negotiating power. That’s the reality of the situation. The trick is to wrap your mind around that reality. It will help you find a house sooner, rather than later.