A year into the COVID-19 pandemic, the residential real estate market is booming. It’s a big change from Spring 2020 when uncertainty and fear of a then-unknown virus brought the housing market to a near-standstill. Since rebounding in Summer 2020, the market exploded, and now we are facing a new problem: low real estate inventory in nearly every major city in the United States.
How can Realtors navigate this fast-paced environment when homes are hard to find? And how can buyers scoop up the perfect home when low real estate inventory threatens to make it next to impossible?
Real Estate is Booming in 2021
The real estate market is HOT going into the spring and summer seasons.
Last spring started with a frightening stall in the economy as real estate transactions came to a halt. The Coronavirus pandemic created panic, causing many homeowners to rethink their plans to sell.
However, summer brought a surprising boost in real estate sales, thanks mainly to dropping interest rates and the demand for more space. Many of us began spending all our time at home – and many of us decided we needed more space.
As we enter what is traditionally the busiest season for home sales, there is low real estate inventory. Many buyers – and their agents – are frustrated as they try to find homes for sale.
Low Real Estate Inventory Nationwide
While the market is ideal for sellers, home buyers are having a difficult time finding properties. Recent data from Realtor.com shows dramatically reduced inventory in every state across America. The national average is about 43% lower than this same time last year – meaning there are far fewer houses, but plenty of buyers vying for available properties.
New builds aren’t much help, either. The pandemic caused labor shortages and supply issues, leading to far fewer home starts last year. While many of those issues have now subsided, new construction isn’t keeping up with the demand.
The pandemic also disrupted the “real estate ladder.” That is, inventory depends on housing turnaround, namely retirees selling larger homes and downsizing or moving into assisted living communities. This process frees up homes for middle-aged buyers who have children of their own and need the larger space. But no one wants to move their elderly parents into assisted living during a health crisis that impacts older adults disproportionately. More people are waiting to move, staying put until the pandemic is over.
In essence, the pandemic created a bottleneck in the real estate pipeline that could take years to get moving again.
It’s Not All Because of the Pandemic
Sure, the pandemic is a key player in the low real estate inventory saga. But it’s not the whole story.
The pandemic accounts for several factors, namely the record low interest rates on mortgages, more people leaving cities for the suburbs, and more people wanting to find more space while working (and educating) at home.
Even before the pandemic, though, inventory has been dwindling. After the housing crash, many builders went out of business. Even as the economy recovered, there were fewer companies to design and build new homes and fewer real estate agents to represent buyers.
Additionally, more people chose to keep their existing properties as rentals rather than sell for a loss. Others joined to AirBnB revolution, leaving fewer homes for sale overall.
The pandemic simply created the perfect storm, where few people were selling existing homes, supply chains impacted new builds, and the economy came to a standstill for several months.
Now, we’re trying to make up for lost time – and that’s not something that will happen overnight.
How Realtors Can Navigate Low Real Estate Inventory
Realtors face dual challenges in a low-inventory market. First, there are fewer sellers to represent. That means you’re competing against other Realtors in your area to find clients willing to sell. Now is the perfect time to invest in marketing, getting your name in front of potential sellers.
In a low real estate inventory environment, you might consider the following marketing strategies:
- Contact past clients – especially those who have been in their homes for two years or more – and update them on the current market. If they’ve been considering a move, the booming market might encourage them to sell.
- Upgrade your website. The competition is steep for Realtors, and your online image could be what sets you apart from other agents. A professional and easy-to-navigate website helps potential clients find your business and conveys professionalism and skill.
- Use technology. There are a myriad of marketing tools available for real estate agents. These tools become particularly important in a competitive market. If you’re not already using social media, email marketing, live video, and other technology to generate buzz, you could have a disadvantage when appealing to sellers.
Secondly, representing a buyer in a low inventory real estate market has its own set of challenges. There are several ways you can help your buyers find the perfect home and get their offer accepted.
- Be honest. Your buyers should understand the current market conditions. Be upfront about the challenges and let them know they will need to act quickly if they want to put an offer on a home.
- Make sure they are pre-approved. Many local markets are seeing multiple-offer situations, sometimes within hours of the home going live on the MLS. That said, if your buyer isn’t already pre-approved, they don’t stand a chance. It’s wise to tell buyers that they must be pre-approved (not merely pre-qualified) before you begin showing them homes.
- Be willing to negotiate. It’s a seller’s market, so your buyers may have to make some concessions. The key to winning a bidding war is to play it smart and put the ball firmly in the seller’s court. That might mean putting down a higher earnest payment, limiting the amount you’ll ask for in repairs, and letting the seller choose the closing date. The more you cater to the sellers, the better chance you’ll have of closing the deal.
How Buyers Can Get the Perfect Home in 2021
This year might prove challenging for home buyers. The inventory is low, and high demand leads to higher prices. However, there are ways homebuyers can find a home and get their offer accepted.
First, buyers should work with a lender to get pre-approved, not merely pre-qualified. While some sellers will accept pre-qualified offers, most want pre-approved buyers instead. A pre-approval is a more detailed financial step, showing that you can qualify for a mortgage. Taking this step can make you a more desirable buyer.
Second, a low inventory market means you’ll have to act fast. There’s really not enough time to think it over – if you find a home you like, it’s best to make the offer. If you’re in a hot market, great homes won’t last long. Most are under contracts in several days, or even a few hours. The sooner you can write the contract, the better.
Will the Low Inventory Last?
Home inventory is down by almost half over this time last year. Prices are up more than 10% on average nationwide. No one knows for sure how long this real estate boom will last, but there are a few things we do know for certain.
Interest rates will start to rise. Now that the COVID-19 vaccine has hit the market, life will start to return to some semblance of normal. The economy will see faster growth thanks to people getting out and spending money. As a result, we can expect mortgage rates to slowly rise. It’s not going to happen overnight – so buyers still have time to secure great interest rates – but as rates rise, the buying boom may slow slightly.
We’re also seeing new builds start to pick up. However, it’s going to take years for housing construction to catch up to buyer demand. Likewise, the “bottleneck” created by older Americans staying in their homes could take time to loosen as well.
While it’s unlikely this low real estate inventory market will last forever, we do know one thing: 2021 is a seller’s market.