“I give up,” she said. “Why should I waste my time looking at homes and making offers only to lose out to cash buyers and higher prices?”
It had been a disappointing couple of months for Shelly, who had been overbid by other buyers on all the homes on which she had made offers. Frustrated and disappointed, she was temporarily giving up on finding a home.
The shortage of homes for sale, pose a difficult dilemma for buyers today. Do they run with the stampeding crowd toward any house listed for sale or should they sit on the fence and wait until the dust settles and inventory is more plentiful.
If they buy now they are at a negotiating disadvantage, competing with multiple offers, cash bidders and offers above the listed price. On the other hand, if buyers wait the interest rates may increase along with home prices. Without much new construction in our county, inventory of homes won’t likely improve until prices climb even higher than they are today.
Sellers are loving all the attention from buyers right now. Higher home prices during the last six months have allowed 22,500 underwater homeowners in our four county region to surface. According to CoreLogic, in 2009 nearly half of all area homeowners owed more on their mortgage than their homes were worth. That percentage has dropped to 31 percent in the Sacramento region and even less in our county. But will higher prices interpolate into more listings? Not necessarily.
Home values have a long way to climb before they match the previous highs of the good-old-days. February’s $283,000 median selling price for a county home is still a bit shy of the $502,500 median price folks were paying back in February 2007. Many homeowners who purchased their home back in the day may not be underwater but they are not very enthusiastic about selling their home for less than what they paid for it.
No help either from future foreclosures and short sales that at one time accounted for more than half of our listings. They now make up less than 15 percent of all county homes for sale. With fewer underwater homeowners, that percentage is likely to drop even lower.
Many equity homeowners are also staying put. Their home is worth more than what they paid for it and they have equity but they aren’t selling. They simply can’t find another home better than what they already have. Sure they would like a single-level or perhaps a bit smaller, something newer and nicer but those homes don’t exist in their downsizing price range.
We are likely at our lowest point for available inventory. Here’s why. Inventory tightens fastest in the first 12 months after prices finally hit bottom. Everybody wants to buy at the bottom but nobody wants to sell at the bottom. Prices hit bottom in February 2012 when the county’s median selling price was $236,000. Since then, inventory has been declining quickly while sales and the median prices have been increasing.
According to Trulia Chief Economist Jed Kolko, “Although listings are increasing on a month-to-month basis as the busy spring season gets under way, they won’t start rising on a year-over-year basis for a year or more.”
If it’s going to take a “year or more” for any significant increase in inventory, what do you suppose is going to happen to prices? County home prices have already increased 28 percent from February of last year. That large of an increase isn’t likely to repeat itself again this year, but who really knows? Without any serious new home construction keeping resale values in check we could be looking at another serious bump in property values this year.
The sweet spot for buyers might be this summer. Although the available inventory of homes is about half of what was on the market a year ago, the seasonal listing and buying pattern will mean more homes will be on the market this summer. Real estate search traffic on Websites peaks in the spring but inventory of homes peaks in July. With school out, many buyers take their vacation in July and August. Besides, it takes really committed buyers to be out previewing homes during the two hottest months of the year.
Shelly isn’t the only want-to-be buyer who has temporarily giving up on finding the perfect house at a price they can afford. Every agent has a story about their disappointed client losing out in the current bidding war that’s going on for county real estate. As more buyers back away from the crowded field of bidders, sales intensity may begin to relax a bit. With a few more listings and a few less buyers, the timing could be right for a serious buyer to get back into the game.
The decision to buy now or wait is complex and personal. Many buyers who jumped into the market frenzy we experienced between 2004 and 2006 later regretted their decision. I suspect years from now we will look back at this time in history as a unique opportunity for buyers who were fortunate to land a good home, financed with an unmatched low interest rate.
Ken Calhoon is a real estate broker in El Dorado County. He can be reached at kencalhoon.com