1 million homes.
That's how many properties were available for purchase in the U.S. in February. To be precise: 1.03 million. That number represents an almost 30% decline from the previous year and the lowest since 1982, according to the National Association of Realtors.
"This is a challenging time for house hunters," said Bill North, Texas regional manager at BOK Financial® Mortgage. "Many people hunkered down during the pandemic and are now starting to consider a move, but they're realizing really quickly that there aren't many houses available."
The dearth of available homes comes at a time when the average interest rate on mortgages–though still lower than a year ago—had increased slightly ahead of the busy spring home-buying season. The Mortgage Bankers Association reports the 30-year fixed rate rose to 3.3% as of March 31, and purchase activity is up 6% year-over-year.
North said that a six-month supply of houses for sale typically creates a "balanced market," but current conditions are limiting many markets to less than two months of available supply.
The short supply isn't the only challenge.
- Decreased supply is driving up costs, so buyers may not be able to afford what they previously could.
- Homebuilders have been reluctant to increase production as recent lumber shortages delay projects and increase building costs.
- Some buyers are settling for homes that need work. But with a stressed supply chain and overworked contractors, some may end up paying a premium for repairs.
Some desperate home seekers are getting creative.
"I've seen buyers who are willing to pay significantly above the appraisal price, which unfortunately, is causing a lot of families to get pushed out of the market," said Tanya Ball, regional manager for BOK Financial Mortgage in Kansas City and Oklahoma. "Those buyers just don't have the opportunity to place a competitive bid because others with more available cash or the ability to close faster are beating them out."
However, many lenders base the size of a mortgage loan on the appraised value of a home.
"Unless a buyer can cover their down payment plus any excess beyond the appraised value, it's going to be really challenging for many people to get into a new home in this market," Ball said. "Right now, sellers are often choosing the buyer with the highest offer and the quickest turnaround time."
Ball expects the market to calm down a bit as the COVID vaccine continues to roll out across the country. Those who had been hesitant about listing their property will feel more comfortable as pandemic concerns around job security or health issues begin to subside, she said. And that should lead to increased supply in the coming months.
Homebuyers: How you can stand out
1. Get pre-approved.
This shows that a buyer is fully underwritten by a lender with commitment to lend based on the buyer's income and assets. "We will even call the selling agent directly to let them know a borrower is pre-approved, which streamlines some steps in the process," North said.
2. Work with a realtor.
"You need a strong partner who knows the ins and outs of this business and can help you navigate your unique situation," he said.
3. Put your best foot forward.
"In a super tight market, buyers are doing anything they can to stand out—writing personalized letters to share their story with photos, waiving contingencies and even submitting an offer without seeing the home," Ball said.
4. Consider waiting it out.
Is this seller's market the best time for you to be house hunting? Ball reminds homebuyers, "The important thing is to know what you can truly afford because you don't want to stretch your budget too far and not be able to enjoy that home after you've won the competitive battle to get it."
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