Wednesday, October 21, 2020 / by Jay Lesko
Our overall inventory is down 52% year-over-year and frustrated buyers are opting for new construction only to find that builders are short on materials leading to longer delivery timeframes. A majority of builders are delivering 12-18 months from time of contract, which does pose market risk for buyers. Interest fluctuations, economic factors, and market values are risks that buyers must take to stay in the game. Oh, and did I mention there is a Presidential Election this year?
It's not all doom and gloom for buyers. Many buyers, especially new construction, are finding their appraised values coming in significantly higher than their contracted price creating instant equity. With an average 30 year fixed rate of 2.75% values will continue to rise. A general market rule of thumb is when interest rates drop home values increase as the purchasing power for a buyer is greater creating higher demand and competition.
Some buyers are frightened by the possibility that we will see the same market concerns or corrections from 2008, but there are some significant differences from now to 2008. In 2008, Mortgage Backed Securities, which are packaged mortgages sold to investors, didn't have the level of due diligence necessary to ensure their value would sustain for the long run. With the creation of the Consumer Financial Protection Bureau coupled with increased regulator scrutiny, mortgage lenders have strict requirements for ensuring the credit capacity, ability to pay, and willingness from a buyer. The reality is that although rates are low it's still a time consuming process to ensure a buyer is qualified. The days of stated income and stated home values is over. Additionally, the buyers are using cash in compete situations. It makes for a stronger offer as there is one less contingency involved in and it's extremely attractive to a seller. The other benefit is that cash buyers set market values. Many cash buyers are not opting for appraisals and as such are setting market values and driving them up.
Considering listing your home? Contact us now to see the difference and how we create a compete situation for your home.