Home buyers have come to accept the new normal of 7% mortgage rates, but they are feeling a sense of déjà vu as real estate once again becomes a competitive sport in many parts of the United States.
Earlier this year, buyers were hoping that mortgage rates would go back down. However, rates remained high, causing business to wane for real estate agents such as Aaron Lanning, an agent based in Menifee, California. But at the end of March and April, buyers began biting the bullet and started purchasing homes.
As they braved the market, buyers have faced a slew of challenges. High mortgage rates present a new obstacle for buyers, who are also contending with issues from the pandemic-era property market including all-cash offers, bidding wars, and waived contingencies like home inspections and appraisals.
In Chicago, real estate broker and investor Rashauna Scott has observed a similar trend among buyers. She says “there’s a lot of competition because the inventory is getting taken up and not only just by home buyers, but you’re also competing with investors in that same space.”
Low inventory is another significant challenge. In May, the number of homes for sale was 1.4 million — the lowest figure since 2012 and a 25% drop from the same period last year.
Homebuyers Face Competition Amid Shrinking Inventory
Despite a decline in homebuyer demand due to increased mortgage rates, competition is staving off a drop in home prices as inventory shrinks, according to a report by Redfin. The study shows that in May, nearly half of the offers made by Redfin agents requested at least one competing bid.
In the Miami market, Rafael Corrales, a real estate agent with Redfin, is witnessing the continued influx of international buyers from the Middle East and Asia as well as out-of-state buyers from states like New York, New Jersey, and California. As home prices remain high, buyers are struggling amid a lack of inventory in addition to rising mortgage rates.
Properties like those renovated and updated in the affluent neighborhoods of Coral Gables and Coconut Grove are selling quickly, creating more frustration for competitive buyers. Corrales explains that cash buyers often have the upper hand when it comes to first-time buyers trying to secure properties in these areas.
Corrales suggests that prospective buyers get their financing in order and prepare to make a larger earnest-money deposit to prove their commitment and increase their chances of having their offers accepted. Earnest money is funds submitted by the buyer before closing on the property as proof of their intent to complete the purchase.
The Housing Market in California During COVID
The COVID-19 pandemic has brought about massive changes in the California housing market. As a result, buyers and sellers alike need to adjust their expectations.
According to Corrales, being flexible is essential in this market. As a seller, you need to offer competitive, aggressive prices to stay ahead of the game. Meanwhile, buyers need to be prepared to look at homes five or more times before making an offer.
While demand has not decreased significantly, the frenzy of the pandemic days has died down. In July 2021, one real estate agent reported that 96 people visited an open house in one day. Today, that same agent receives around 15-20 visitors per open house.
Sellers, too, have adapted to the changing market by holding onto their homes and renting them out. This creates a competitive marketplace with fewer available homes.
In short, all parties involved need to be prepared for a seller’s market. Prices continue to remain high with little relief in sight. Therefore it’s essential for buyers to adjust expectations in order to find their dream home.