With the increase in rental rates the last few years, more people are starting to think about buying a home. Unfortunately, the current nationwide housing shortage is causing a dilemma for many prospective buyers. The shortage isn’t necessarily bad — it means more people feeling confident about taking on a mortgage, and families relocating for newly generated jobs. But as we’ve seen, a booming housing market can be a problem when (1) homeowners aren’t selling, and (2) there aren’t enough new-construction homes to meet the demand.
Although some homeowners are still recovering from underwater mortgages, many are finally seeing an increase in their home equity, and have refinanced with lower interest rates. Still, it’s no surprise home owners feel skittish about selling just yet, especially when their own prospects for a new home are slim and pricy. So what about new housing? What seems like the perfect solution to the housing shortage isn’t happening as quickly as it needs to because construction companies are having difficulty getting financed, themselves.
Best Housing Shortage Strategies
In this type of a seller’s market, the prospective homebuyer is faced with a situation similar to a Black Friday sale: demand exceeds the supply, and whoever is the most gutsy gets the prize. Here are a few tips for navigating this tricky environment and coming out on-budget with the home you want.
1. Know where you stand
Being thoroughly aware of your credit score, borrowing power, and housing budget is the key to security in a seller’s market. Sit down with your lender, financial planner, or real estate agent to talk about what you can afford. It’s especially important to know exactly how high you can go in a bidding war before bowing out, because homes are selling at or above value in some cases.
2. Recruit expert advice
Call in reinforcements when the stakes are high. A real estate contact familiar with the current market conditions can advise you if homes you’re looking at are priced too high, and provide insider tips and leads you wouldn’t have on your own.
3. Be first in line
With only a few month supply of homes on the market, the competition is getting hotter. If you want a home badly enough, you’ll have to make an effort to bid early in the game.
4. Provide proof of pre-qualification from your lender
Having pre-qualification paperwork to present when you place your offer is impressive to a seller and gets you a step ahead of the process. In other types of markets, you may be able to relax a little on this step, but right now being ‘good for’ a certain amount is more important in the face of competing offers.
David’s Note: I have a different take on this. As a buyer, I don’t want the seller to know how much I qualify for because that gives them an upper hand in price negotiations. I may lose out in a bidding war, but I definitely don’t want to overpay for a property.
5. Prove you want it, but don’t get caught up in a bidding war
It’s tempting to place a counter offer if you’re outbid on a house you love, but don’t let your emotions get the best of you. Stick to your budget and bow out if bids skyrocket way beyond value. You can try to send a letter to the owner if you really want to give it one last shot. This sounds cheesy, but the tactic frequently works. Sellers are still attached to their homes, so you can appeal to their emotions even though they’re trying to get top dollar for their investment by letting them know just how much the home would mean to you and your family.
Patience is Rewarded
If you’re having difficulty finding a house, don’t get discouraged. It’s far worse to get caught in a mortgage you can’t afford than to wait for a better deal. The market always balances out, and when it does, your patience will be rewarded with the house of your dreams at a price you can live with.
Have you purchased a home recently? Which strategies worked best for you?