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Why Low Housing Inventory Means More Money

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Graph showing rising real estate prices why low housing inventory means more money.

Why low housing inventory means more money for you, the For Sale By Owner.

My day job is helping people with their real estate needs.  That entails answering questions, consulting, helping folks find homes to buy and listing homes for people that want to sell.  

I also teach Ordinary People how to sell their homes themselves without having to hire a listing agent.

By ordinary people, I mean not real estate agents. 

Why would I want to show someone how to do my job themselves, without me? It’s because I can see the future. Every year more and more home sellers are deciding to go it alone, to sell their homes themselves. It would be a much larger number if people knew how to do it, how easy it can be. If they weren’t nervous about it. 

The number of For Sale By Owners is growing regardless.

It’s very profitable.

When I ask clients if they ever thought about selling their homes themselves the answers I get are I don’t know how or they think there’s a lot more to it than there is. Sometimes they don’t want to “deal” with it. Those are the homes I sell, and charge a lot to do so.

Not only do I teach strategies and tips for helping you to sell your house yourself, but occasionally I like to bring you information about market conditions.

Why Market Conditions Are Important

Market conditions are important to know because they dictate price and sell time, how long you can expect your house to be on the market before it sells. Price and sell time are the two biggest concerns for a home seller.

Knowing this information about the state of the real estate markets lets you know how long is too long for a house to be on the market for sale. This is very important information. That’s how you determine if your price is right or if it’s too high. If the house is sitting on the market for too long then it’s priced too high.

That’s important because time on the market can really affect price. The longer it sits the less it gets, but time on market is relative to market conditions.

For example:

Buyers Market

In a strong buyer’s market, meaning there is an oversupply of homes for sale, I expect a house to sit longer. If homes similar to yours are taking 3 months to sell, then you should expect yours to take around three months to sell.

Give it 3 months and if your home hasn’t sold you have to start thinking about a price reduction. If it sits too long, potential buyers will wonder what’s wrong with the house. When they do view it, they will look for problems to explain why it hasn’t sold.

That’s what I do for my buyer clients. When we look at a house that’s not selling I have to wonder why. Most of the time it’s simply because a house is overpriced but buyers don’t always understand price.

Sellers Market

Adversely in a seller’s market when there is not enough supply of homes to satisfy buyer demand then homes will sell fast and for more money. Simple supply and demand metrics. Not enough Supply to meet demand means higher prices.

Supply shortages cause bidding wars. When there is over one buyer making an offer on your home, that’s referred to as a bidding war. Bidding wars are good for sellers because it drives the price up. Buyers are competing against each other.

That’s why low housing inventory means more money. More people competing against fewer homes.

Market Conditions Summer of 2020

So finally let’s talk about this market. Right now, the summer of 2020, the country is in a very robust real estate market. It’s a seller’s market for sure. More so than your average seller’s market. There are some historical things happening in the real estate market right now despite the covid-19 recession, and because of it.

Let me explain.

This pandemic and the massive unemployment across the country caused by it has somehow not really affected real estate much. Most past recessions in the United States have caused home prices to drop, sometimes plummeting to historical lows. Not so with the covid-19 recession. 

In fact prices are rising at a rapid pace. That’s a direct result of low housing inventory and why it makes you money.

According to Attom Data Solutions home prices nationwide rose 6’2% in 2019. The first half of 2020 has seen an even more drastic increase. First quarter data provided by the National Association of Realtors shows real estate prices rose 7.7% more over the same time in 2019.  The second quarter shows no sign of slowing down.

Back in December of 2019 Zillow was writing articles about low housing inventory and it’s only gotten worse since.

Not Enough Supply

The very limited housing Supply across the country has been driving prices up at an alarming rate.  Good for you if you’re selling your house yourself, not so much if you’re buying a house.

“Supply is extremely limited and there are simply not as many homes for sale to meet the demand among potential buyers” says Lawerence Yun, NAR’s chief economist.

Short supply and increased demand means higher prices. It’s economics 101.

To Much Demand

And that brings us to the demand side. It seems to me, in Kansas anyway, there are more buyers looking for a home this year then in previous memory. I hear the same thing from my colleagues around the country.  It could be that there is a backlog of buyers building up because they can’t find homes to buy.

Another factor driving buyers out in droves is the massive rate cuts by the Federal Reserve. Mortgage interest rates are at historic lows, dipping below even the low rates during and shortly after the great financial recession of 2008-2009. last week I put a buyer client in contract on a 30 year fixed FHA loan at a 2.75% interest rate. 2.75%. Crazy.

Low Housing Inventory Causes Rising Home Prices

I’ve been helping people with real estate in Kansas for 11 years. I’ve seen nothing like this. Low Supply and high demand means more money for you as a for sale by owner. There literally has never been a better time to be a home seller.

Sometimes when real estate prices start Rising dramatically for no good reason appraisers will hold them back. That’s part of their job, but even the appraisers are justifying this current rapid rise in real estate prices because of the supply shortage.

This was exemplified on one of my recent appraisals.  The appraiser noted:

“There is a shortage of homes for sale. This in turn has caused fewer sales. As the sales indicate, there is a range in value. This is not considered unusual due to the limited number of homes for sale. A market condition adjustment was made to the sales. Recent data does not indicate an impact on values due to COVID 19. The market condition adjustment was based upon the most recent Federal Housing Finance Agency (FHFA) figures for the area.”

This Low Inventory Won’t Last Forever

This won’t last forever. It’s still to be seen how the Covid 19 recession will shake out. If the economy falters home prices will drop. As long as the Government is providing stimulus economists predict the economy will remain stable but more stimulus means more debt. It remains to be seen how much debt the country can stomach.

The short term good news is that low housing inventory means more money for you.

In conclusion, is it a good time to sell a house? That is a big fat yes. It’s a great time to be selling a house. Residential real estate prices are on the rise all across the country. Homes that are Priced right and properly prepared for market are selling at crazy high prices and they’re selling fast. Many times they’re selling with multiple offers in a day or two.

Is it a good time to buy a house? Not so much. With real estate prices on the rise you’re paying quite a bit more than you would have paid last year, six months ago or even last month in many cases.

If you are selling your house because you want to downsize, upsize or for whatever reason you’re buying it could get a little tricky. If you’re selling your house yourself and moving into a van, well, count your money.

Thank You

Thanks for reading and if you have questions ask Below in the comments. You can also take a look at my website, https://infinhomeservices.com/, for information, tips and strategies to help you sell your house yourself.

There’s also a member’s section, https://infinhomeservices.com/diy-real-estate-3/, with a step-by-step detailed guide to teach you everything you need to know to sell your house yourself fast and have a smooth transaction. It’s the same thing I teach new agents when they’re first time learning how to sell homes.

If you need state-specific real estate forms and disclosures there’s a link for that too.

When Your Buyer Asks for Concessions

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When your buyer asks for concessions it means they are negotiating more than just the price. Concessions are anything the buyer is asking for outside of price. If the buyer is financing a loan for the house he may ask you to pay the closing costs for him/her. There could be furniture the buyer likes and wants you to leave behind. A concession is a thing that is granted, especially in response to demands. A thing conceded.

concessions, 3d rendering, traffic sign, blue sky, clouds
Concessions, traffic sign

The most common concessions asked for by buyers is to have you pay their closing costs for them. Closing costs are incurred when financing a real estate purchase. Costs incurred include loan origination fees, discount points, surveys, deed recording fees, taxes, credit report charges and flood plain determination fees. There could be others but these are the most common.

Prepaids are also included in closing costs. Prepaids are buyer costs collected at closing and put into an escrow account for expenses such as taxes, property insurance, mortgage insurance and special assessments.

Asking for closing costs to be paid has become common. So common many times it is expected by buyers. Sometimes lenders make it a condition of pre-approval. It doesn’t mean you have to accept, it’s simply part of the negotiation. When a seller agrees to pay closing costs for a buyer the amount is generally added to the price. It’s not like someone’s giving money away. The potential problem when paying closing costs is the appraisal.

If a house doesn’t appraise the contract has to be renegotiated. A bank  will not lend more then the contract price under normal circumstances. If closing costs are being paid and the house does not appraise the seller will want to take away the paid closing costs. That way the bottom line stays the same. The buyer will still want the closing costs paid but at a lower contract price. There’s potential for the deal to fall apart at this stage.

In some states it’s not common to leave appliances with the property. Asking for said appliances is another concession. Sometimes potential buyers may ask for some of your stuff in an initial offer. That stuff could be your furniture, wall hangings or electronics. I’ve seen buyers ask for riding lawn mowers on homes with large lots.

Concessions are part of negotiations. In a buyers market concessions are asked for more often. In a sellers market not so much simply because the buyer doesn’t have as much room to negotiate. You don’t have to say yes and you don’t have to say no to concessions, it’s all part of the negotiations.

You can easily sell your home yourself. It’s your money, keep it.