For better or worse, the real estate market can fluctuate from year to year or even by season. For both buyers and sellers, housing inventory is a key factor to pay attention to. Whether the housing inventory is high or low can carry advantages or drawbacks.
Here’s how to gauge the local real estate market and navigate high and low housing inventory through the perspective of buyers vs. sellers.
What Is Housing Inventory?
An area’s housing inventory can be thought of as the current supply of properties for sale.
The housing inventory will increase or decrease according to the difference between the rate of new listings on the market and the number of closed sales or houses taken off the market for other reasons.
Although this calculation can be done at any time, it’s common practice to assess the balance at the end of the month. Comparing monthly figures can show if housing inventory is trending up, down, or staying relatively stable.
If there appears to be a rapid trend in either direction, it may signal the need to take quick action on a purchase or sale, or hold off for a while.
Even within a town or city, housing inventory can vary significantly. To better understand your local housing market trends, you can dig deeper into important indicators like average time on the market and average price of nearby homes or in your desired neighborhood.
High Housing Inventory
An area with a high housing inventory has more properties on the market than there are people looking to buy. This can also be referred to as a buyer’s market, since the larger selection of homes usually favors prospective buyers more than sellers.
These conditions may cause the price of homes to stagnate or, in more extreme cases, fall. Typically, the average property will also take longer to sell in this environment.
Still, different financial situations and unique property characteristics can influence the advantages or challenges associated with buying and selling during high housing inventory. Here are some considerations and tips for either situation.
If You’re a Buyer Amid High Housing Inventory
In many cases, shopping for a new home during high housing inventory is a favorable situation to be in.
If timelines and scheduling allow, buyers could benefit from seeing multiple properties before making an offer. High housing inventory means there are fewer buyers to compete with, so there’s less of a risk that homes will quickly get scooped up.
Knowledge is power when it comes to making an offer. Having viewed comparable houses in the area firsthand could help later at the negotiating table.
Other property details, such as price reductions and total days on the market, are potential indicators that sellers might be ready to accept an offer below asking price.
Although buyers can have a comparative edge when housing inventory is high, there is still a chance of multiple offers and bidding wars for well-priced homes.
If You’re a Seller Amid High Housing Inventory
Putting a property on the market in a location with high housing inventory may pose challenges and require more time to find the right buyer. However, there are several strategies at a seller’s disposal to unload a house without financial loss.
To stand out in a crowded field, it can help to address any persisting issues and accentuate your home’s best assets.
Parts of the property in need of common home repairs—the foundation, electrical system, HVAC system, and so on—could discourage potential buyers. Instead of accepting lower offers or other concessions, sellers may save more money by handling the repairs before putting the house on the market.
Making improvements can be helpful, too.
A kitchen reno is one thing, but doing a thorough cleaning and tidying up landscaping are easy fixes that could make a better impression on prospective buyers.
Decluttering is another way to enhance a house for showings and listing photos. It could also indicate a shorter turnaround for buyers eager to move quickly.
When all is said and done, setting an asking price that’s not too far above similar properties may be necessary to keep your property on buyers’ radar.
Low Housing Inventory
Also known as a seller’s market or a hot housing market, an area with low housing inventory has a surplus of interested homebuyers and a shortage of available listings.
Usually, sellers in an area with low housing inventory can get a higher price for their property. Thanks to the abundance of buyers, It’s not uncommon to see multiple offers for any type of housing stock.
Let’s take a closer look at how to make the most of low housing inventory for either side of the deal.
If You’re a Buyer Amid Low Housing Inventory
Although the odds may not favor buyers in a low housing inventory environment, they still have some options to increase their chances of finding a dream home
In a multiple-offer situation, the highest price may not be the most advantageous deal for the seller. Being flexible on the closing date and limiting contingencies can affect an offer’s competitiveness.
Getting pre-qualified or pre-approved for a mortgage loan can show that buyers are ready to go and financially eligible. Typically, lenders provide potential borrowers with a letter stating how much they can borrow, given some conditions.
Pre-approval, which involves analysis of at least two years of tax returns, months’ worth of income history and bank statements, and documents showing any additional sources of income, can carry more weight and speed up the mortgage application process.
If you can swing it, a cash offer is often seen as advantageous because there’s no risk of the deal falling through from a denied mortgage loan.
An escalation clause is another method for beating out competing bids. The clause means a buyer automatically will increase their initial bid up to a specified dollar amount. For example, a buyer with an escalation clause could offer $250,000 with an option to bump up to $255,000 if another offer exceeded theirs.
Even in a seller’s market, house hunters would do best to keep appraised values in mind. If buyers pay thousands more than the appraised value of a house, their home equity could take a hit.
If You’re a Seller Amid Low Housing Inventory
When the forces of supply and demand favor sellers, they have a better chance of fielding multiple offers on a property. Still, getting a great deal is not a sure thing.
The same conventional wisdom applies for cleaning and touching up a house to get more foot traffic at showings or open houses.
Setting a reasonable asking price just below the market value—a figure based in part on comps, or comparables, what similar homes in the same area have sold for recently—is another way to capture buyer interest. In a multiple-offer situation, this gives buyers room to outbid each other, potentially increasing the purchase price above asking.
If faced with more than one offer, it may be tempting to go for the highest bidder. It can be beneficial to review each buyer’s finances and contingencies to lower the risk of a deal falling through.
Cash offers are generally the most secure but represent just 14% of buyers, according to a National Association of Realtors® report.
Lenders may not extend financing for pre-approved buyers if they’re applying to borrow more than the appraised value of a home.
And contingencies like the house passing an inspection could allow a buyer to back out of a deal, too.
Buying a Home
Housing inventory is an important consideration when looking for a new home, but it’s just one aspect of deciding the best time to buy a house.
Personal finances also come into play. Most buyers will have to borrow to seal the deal.
Getting quotes from several lenders can help find a home loan that best fits your needs. And you can get pre-approved by multiple lenders without hurting your credit score, as long as it’s done within a 45-day time frame.
SoFi offers mortgage loans with competitive rates, no hidden fees, and as little as 10% down. Mortgage loan officers are on hand to help you through the process and make your dream home a reality.
Housing inventory dictates whether an area is a buyer’s or seller’s market. Knowing homes’ average time on the market, comps, and strategies can help lookers and listers navigate high and low housing inventory.
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