5 Tips for Buying a Home During the Present Housing Shortage

by David@MoneyNing.com · 2 comments

home for sale
You’d think the increased demand caused by the pandemic would have died out by now, but it seems like the problem is just getting more and more serious. The nationwide housing inventory is at a record low, and the shortage is causing a dilemma for many prospective buyers. The shortage isn’t necessarily bad. At the very least, the economy hasn’t faltered to a point where people are unable to take on a mortgage anymore. 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.

It can even create problems for sellers. That’s because sellers still need to stay somewhere after they move. My friend recently sold her house for over her asking price because she got nine offers within the first week of listing her home for sale. That turned out to be a problem. Why? Because she sold her home so quickly and her family still needs a place to live in. Originally, her plan was to find a house shortly after she sells hers but she is being outbid by cash offers left and right on her quest for her replacement home.

When she sold her home, she rushed to find an apartment and signed a three-month lease. With the extra month offered by escrow, she thought she surely would’ve been able to find a suitable replacement within four months. It’s now been five and she still hasn’t won a bidding war yet. She’s had to up her budget two times for more than six figures, and she is still getting outbid. She’s getting desperate and the stress level at her household has been high.

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 and at record speed.

2. Recruit expert advice.
Call in reinforcements when the stakes are high. A real estate agent 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. Real estate are also hyper local, with agents who are normally active in a specific geographical area. Those agents who are familiar with your target neighborhood may know of possible pocket listings – those homeowners who may want to sell without even putting the house on the market. In these instances, you may be able to snatch a home before the competition finds out.

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 as soon as the home is listed. Let’s get back to those pocket listings. Even if a potential seller is adamant to let the public bid on the home, you will at least get to tour the home the day it’s listed on the market if your buyer’s agent is a competent professional that is active in the local area. Think about it. If the seller’s agent knows that he or she may have to deal with your agent when it’s your agent’s turn to sell a home, wouldn’t the seller’s agent be more friendly and accommodating?

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 normal times. These days, having proof that you can afford the home you are bidding on is the bare minimum. 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. You’ll also want to provide proof of where the down payment is coming from, just to make the package more complete.

5. Prove you want it, but don’t get caught up in a bidding war.
It’s tempting to keep placing higher counter offers 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. It’s a tough pill to swallow. It’s hard for me just to hear from my friend’s journey to get back into a home she owns. But 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?

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  • GreenDollarBillsGirl says:

    I definitely think it depends on location too – especially after the virus, lots of people are moving out from cities and towards the countryside; hence prices rising more in rural areas. I would have been lost without my broker organising the whole mortgage, and getting me the best possible rates and even £500 cashback. It was all in place before we went house hunting, which enabled us to put an offer in on the house the same day it was listed!

  • Jackson says:

    Get pre-approved! Knowledgeable agent who knows the comps will help you go the distance without over-extending your budget.

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