The real estate market is in a very unique situation right now. While Covid might have paused business, now sales are booming. Or are they? Finding a house might be difficult, yet there has never been a better time to sell. That is, if the seller is up for selling.
Prices are high, and in this seller’s market almost everything goes…including the toilet. Unfortunately, buyers might be burning out in this seller-dominated market. Here’s how the state of the 2021 real estate market has affected both buyers and sellers.
Prices are High
Before the real estate bubble burst back in 2008, approvals for home loans were seemingly simple. The market was great for quite a while, but then borrowers started to default on mortgages. Home prices fell. The market stagnated.
For a while during Covid, the market paused again. Not many homeowners were looking to sell during a time of shelter-in-place mandates, fear and apprehension. Many people were laid off, many more were working from home, jobless rates soared and things looked glum for the economy.
Jobs are plentiful now, and the real estate market has never been better…for sellers. Now homes won’t stay on the market for a week without buyers scooping them up. Some homes don’t even hit the MLS, because interested buyers find out before the listing hits the internet. Bidding wars now are not uncommon. And the power lies with the seller.
Buyers might not be able to make demands of the seller like they could in the past. And things are getting crazy now that sellers do have so much pull. An article for the New York Times says it all in the headline: “Buy My House, But I’m Taking the Toilet.”
While the standard policy has always been that fixed appliances stay, this seller’s market is breaking some of the rules. Yes, sellers are taking toilets. The Times also notes that sellers also have been known to keep dishwashers and stoves.
And they can make these demands. In some areas, bidding wars are fierce…so fierce that the toilet can, in fact, be packed up with the towels. What’s the buyer going to do? Another hopeful buyer waits in line to snag the house if that toilet becomes a contentious contractual issue.
Toilets and appliances might be pulled from the house, but prices aren’t going down. Prices for many homes are higher now. And the listing price might not even be the ultimate sales price, because, as REALTORS® know, bidding wars lead to higher purchase prices.
CoreLogic states that home prices have jumped 18 percent from July 2020 to July 2021. Statista breaks down the numbers by state; Idaho showed a 23.66 percent increase in 2021’s first quarter compared to 2020. While this data reflects only single-family houses, many states saw double digit percentile increases.
Will the appreciation decrease or cool down in 2022? That remains to be seen.
Appreciation Benefits Homeowners Staying in their Home, Too!
While some homeowners aren’t necessarily in the market to list their home, they also might be benefiting from the appreciation of home values. As homes are selling for higher prices, those living in their homes may be quietly gaining equity.
Homeowners staying in their home suddenly have a much more valuable asset. Equity could provide an invisible safety net; if the homeowner needs to sell, they would, hopefully, come out in the positive. Typically equity builds as the homeowner pays down the principal amount on a mortgage; however, soaring home prices also could raise the value of the home and build equity in the process.
Just how much equity are homeowners gaining from the booming home prices? CoreLogic reported that the “Average homeowner gained $33,400 in equity between Q1 2020 and Q1 2021.”
Home Selection Is Low
Economics is all about supply and demand. For the housing market, demand is high while supply is low. Yes, homes are going quickly and for higher prices. Buyers aren’t suddenly just willing to pay much more than they did a few years ago for the same home. They really don’t have much choice.
There are fewer homes listed but many interested buyers. It is not unusual for buyers to find out via word of mouth that a home is about to be listed. Before the listing even hits the internet, offers might come in for the home.
Sellers likely know that there isn’t much choice out there for buyers. And sellers in very desirable areas with an equally desirable home (the typical three-bedroom, two-bath, for example) are in a great position when contracts start being offered.
This isn’t necessarily the time for the buyer to make demands that are unreasonable. This is a market where sellers are taking their toilets! Not only might sellers need to compromise, but they also might need to offer up their best offer. Presenting a low offer to a seller probably isn’t happening too often, and, if it is, those contracts might have been rejected…unless the seller desperately needed out.
Buyers might discover that they aren’t the only one that has fallen in love with the image of a certain home. There may be many who are vying for the attention and approval of the invisible seller. Some potential buyers might even write letters, or, as they are often dubbed “love letters,” talking about their family and how the home would be perfect. Love letters are meant to appeal to the heart of the seller, to picture a family in their home, to resonate some feeling of kinship and, really, to help seal the deal.
Love letters aren’t uncommon, but even these little written sentiments are beginning to come under criticism. In fact, the National Association of REALTORS addressed the potential pitfalls of these ‘love letters.’ Because of liability issues related to fair housing laws, NAR advises REALTORS to do the following:
- Educate your clients about the fair housing laws and the pitfalls of buyer love letters.
- Inform your clients that you will not deliver buyer love letters, and advise others that no buyer love letters will be accepted as part of the MLS listing.
- Remind your clients that their decision to accept or reject an offer should be based on objective criteria only.
- If your client insists on drafting a buyer love letter, do not help your client draft or deliver it.
- Avoid reading any love letter drafted or received by your client.
- Document all offers received and the seller’s objective reason for accepting an offer.
“In order to help a seller avoid selecting a buyer based on the buyer’s race, color, religion, sex, sexual orientation, national origin, marital status or familial status as prohibited by the Fair Housing Act (42 U.S.C. 3601 et seq.), a seller’s agent shall reject any communication other than customary documents in a real estate transaction, including photographs, provided by a buyer.”
Buyers are Being Rejected and Feeling Dejected
There are many stories that have hit the media where potential buyers have expressed frustration with the market. They might feel completely locked out. Their contracts might have been rejected. Money noted in its headline that “Finding a Home Right Now is so Hard, Sellers are Scouring Obituaries and Divorce Notices.”
REALTORS probably never thought they’d see a day when buyers were so desperate for a home that they were turning to the obituary section of a newspaper instead of the Real Estate section. Yet, here we are.
CNN talked to several home buyers. One from Indiana noted that she couldn’t find a home in her $250,000 budget; some homes were selling for $100,000 more than list price. CNN also noted that sales have decreased, and one of the reasons might be that some buyers are fed up, they can’t compete…and maybe they’re just burned out.
REALTORS have likely worked with buyers who faced a similar situation, feeling that they couldn’t compete, or as the individual who was interviewed explained, didn’t want to make concessions that they might later regret.
What Lies Ahead for 2022?
While the market currently favors the seller, anything could change in 2022. However, the end of 2021 is still a fiercely competitive buying market. Sellers might continue to see bidding wars, buyers may need to put their best offer forward in order to get their dream home, and toilets might still disappear. Scrolling through homes online could show more Pending and Contingent listings than For Sale offerings.
However, the appreciating values of homes adds to the invisible gains of homeowners. Even homeowners who aren’t ready or willing to sell may benefit from an equity gain. Depending on the area and the home itself, the value could be much higher than previous years.
REALTORS may face this market with mixed feelings. Sellers may be incredibly thrilled at their gains, but many REALTORS might work with buyers who simply can’t find a home. However, the pendulum can swing another way, and 2022 could be the year when homes become plentiful and buyers can easily find the home of their dreams.