Whether you are looking for a home to buy or you’re considering putting your current home on the market, it’s important that you know where the market stands. While a licensed real estate agent can provide you with sound advice about the market in your specific area, it’s still a good idea to understand where the US housing market is as a whole. Regardless of which side of the deal you intend to be on, you should understand how to use the current market conditions to your benefit.
As is the case with every industry in the world, the real estate industry has been greatly impacted by the COVID-19 pandemic. Now that some states are reporting an uptick in cases along with the new Delta variant, it’s impossible to determine exactly how much more the real estate market will evolve over the next few months. However, we can look at today’s real estate market in the United States to get a good understanding of how you can use current market conditions to your advantage.
When the US economy is facing a period of uncertainty, the federal government will often enact policies that encourage people to continue spending. One such way of doing this is lowering interest rates, which encourages people to borrow money in order to make major purchases. This influx of borrowed money that is spent on large purchases such as homes can help keep the economy as a whole stable since money going into one part of the economy directly impacts other market components.
Interest rates are currently lower than they’ve ever been. As of July 30, 2021, the average interest rate for a 30-year fixed-rate mortgage was at 2.842%, easily the lowest it’s ever been. Interest rates started dropping when the economic ramifications of Covid were initially felt. Now, roughly 18 months into the US battle against Covid, interest rates are still low, as people are still facing a great deal of economic uncertainty.
An Influx of Buyers
Interest is basically the amount of money that a lender charges someone in order to borrow money. If you borrow $150,000 from a bank, they obviously have to get more than $150,000 back. If not, there would be no reason for them to loan money. However, since interest rates are so low, more and more people are borrowing money.
When interest rates are high, people who aren’t overly motivated to move generally don’t obtain mortgages to buy a home. There’s no reason for them to pay back thousands of dollars in interest unless you’re in a position in which you have to move.
If you’re selling your home, this is great news for you (more on that in a moment). This record-low interest rate means that there are more potential buyers than usual for your property. If you’re buying a home, this is both good and bad. Yes, you’ll be able to obtain a mortgage for a lower monthly payment, but it’s worth noting that you’ll have a lot of competition when you’re ready to actually find and purchase a home.
Location, Location, Location
Nothing matters more in the real estate industry than location. For instance, a house situated in a metropolitan area or within walking distance of the beach will probably always be worth more than a similar property that is found in a small town that doesn’t have a lot of job opportunities and very little room for growth. However, for the first time in years, industry experts do say that there is a strong demand for homes in essentially every region. No, this doesn’t mean that a home found in a small town is going to be worth more than one found in Chicago, Illinois, but it does mean there is a demand in virtually every region.
If you’re selling a home, there’s a good chance that there is going to be a demand for it, regardless of your geographic region. If you’re buying, you’ll probably have some competition.
What it Means for Sellers
If you’ve got a “For Sale” sign in your front yard, there’s a good possibility that it’s not going to be there very long. According to Redfin, the median number of days that a home is sitting on the market before getting an accepted offer is only 14 days. That number was at 39 at this point in 2020. Not only does the decrease in mortgage rates lead to this surge of quick transactions, but the fact that the housing inventory is at an all-time low also motivates buyers to move quickly.
On average, the US has had six months’ worth of inventory on the market. Currently, there’s 1.1 months’ worth of homes available. Low interest rates and a decreased inventory means that sellers are in the power position when negotiating real estate deals at the moment. As long as there are more potential buyers than there are homes on the market, sellers will win.
What it Means for Buyers
Just because the market currently favors sellers doesn’t mean that buyers can’t get a good deal on a home. Yes, asking prices are higher because the laws of supply and demand dictate that they have to be at the moment. However, since interest rates are lower than they’ve ever been in history, an increase in home price can be somewhat offset by the fact that you won’t have to pay such high interest rates.
If you’re planning on purchasing a home, the market does indicate that you need to be ready for a competitive process. Depending on the specific market that you’re shopping in, you may have to put in an offer above asking price in order to get the home that you want. There’s also a chance that you may find yourself in a bidding war.
Buyers in the current housing market need to strike the balance between being patient and being aggressive. You don’t want to wait too long to make a move and allow interest rates to go back up. However, you also don’t want to pay too much for a home and have yourself in a position to have negative equity at the onset of your mortgage.
The Forecast
Success in the real estate industry is largely about being able to determine what the market is going to do in the future. While we don’t have anyway to know the specifics, it’s worth noting that most industry experts believe that interest rates are going to stay at or around where they currently are for the foreseeable future. As long as the economy is still faced with the uncertainty of an ongoing global pandemic, policymakers will do what they deem necessary to stabilize the US economy.
As is always the case, there are opportunities for you to succeed in a real estate deal whether you’re buying or selling. Yes, the market is presently slanted towards sellers. However, making informed decisions with the help of a licensed realtor can put you in a position to get the best deal possible, regardless of your status as a buyer or seller.
