For better or worse, the real estate market can fluctuate from year to year or even month by month. In recent memory, there’s been a pandemic-fueled buying frenzy that fueled bidding wars over the limited supply of properties. Now, as mortgage rates increase, it remains to be seen if the situation is evolving into a low-demand, high-availability market. Signs point to the market being a bit more forgiving for those shopping for homes.
For both buyers and sellers, real estate inventory is a key factor to note. Whether the housing inventory is high or low can carry advantages or drawbacks. It can also impact your strategy if you are hunting for a home or trying to get yours sold.
Here’s a closer look at how to gauge the local real estate market and navigate high and low housing inventory through the perspective of buyers vs. sellers. Read on for details.
What Is Housing Inventory?
An area’s real estate 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 take a wait-and-see position and hold off for a while.
Even within a town or city, real estate 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. Next, we’ll delve into this in more depth.
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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, there’s a huge variety of financial situations and unique property characteristics out there. Each case will be different, but here are some considerations if you’re buying or selling during a moment of high housing inventory.
If You’re a Buyer Amid High Housing Inventory
In many cases, shopping for a new home during high housing inventory can be a blessing.
• Take it slow (or at least slower). You may be able to see multiple properties before making an offer and size up which home best suits you. 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.
• Shop around. Knowledge is power when it comes to making an offer. Having viewed comparable houses in the area firsthand could help when it’s your turn at the negotiating table.
• Do your research. 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, of course, still a chance of multiple offers and bidding wars for well-priced homes. There are likely to be others who want to take advantage of what may be called a soft market in real estate terms.
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If You’re a Seller Amid High Housing Inventory
Putting a property on the market in a location with high housing inventory may require more time to find the right buyer. After all, you’re not the only game in town. However, there are several strategies at a seller’s disposal to unload a house without financial loss.
• Fix it up. 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.
• Improve it. Making improvements can be helpful, too. A kitchen reno may be out of reach in terms of time and money, but doing a thorough cleaning and tidying up landscaping are easy fixes that could make a better impression on prospective buyers.
• Declutter. It’s another way to enhance a house for showings and listing photos. It could also indicate a shorter turnaround for buyers eager to move quickly.
• Price it right. 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 and bidding wars 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.
• Think beyond price. 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.
• Get pre-qualified or pre-approved. Doing the legwork, researching the different kinds of mortgages in advance, and getting pre-qualified 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.
• Consider cash. 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.
• Opt for an escalation clause, a 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.
• Know what a place is worth. 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. Here, some advice to help you take advantage of this scenario.
• Spruce it up. The same conventional wisdom applies for cleaning and touching up a house to get more foot traffic at showings or open houses.
• Set a reasonable asking price just below the market value — a figure based in part on comps, or comparables, which reveal what similar homes in the same area have sold for recently. This can be a good 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.
• Look past price alone. 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.
• Recognize that cash is king. Cash offers are generally the most secure. These have risen significantly in the current hot market, according to a National Association of Realtors® report. They made up 25% of sales in May of 2021.
• Check contingencies. If there are offers with contingencies like the house passing an inspection, they could allow a buyer to back out of a deal vs. ones that waive such contingencies.
Buying a Home
Housing inventory can be an important factor when looking for a new home and may impact your experience in a positive or negative way. Knowing how to negotiate both scenarios, whether as a buyer or seller, can help you get the best deal with the least amount of stress.
You’ll also have other considerations to keep in mind as you shop for your home. These may include:
• How much you can put down
• What type of mortgage works best for you
• How much your mortgage will cost
• What your closing costs will be
• How much you’ll need for any necessary renovations
• What the property taxes are
If you’re a buyer, finding the right mortgage will also be a big factor. That’s where SoFi can help. SoFi offers mortgage loans with competitive rates, and as little as 3% down for qualifying first-time homebuyers. Mortgage Loan Officers are on hand to help you through the process and make your dream home a reality.
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.