Housing markets like Seattle, Las Vegas, San Jose, Nashville, Salt Lake City, and Kansas City are so competitive buyers are making offers sight-unseen and going to other great lengths to close the deal.
Homebuyers are getting desperate for deals – any deals at all – and it is creating a buying frenzy the likes of which has not been seen in many markets in more than a decade, if ever. According to Ralph McLaughlin, chief economist of Veritas Urbis Economics, Spring 2018 could be “one of the most difficult years [for homebuyers] in recent memory.” Although this is positive news for anyone selling at retail in many of the nation’s hot markets, it is likely to create additional volatility for both buyers and sellers.
According to National Association of Realtors (NAR) chief economist Lawrence Yun, would-be buyers are waiting inspections, making offers sight-unseen, and offering to pay far over initial asking prices up front. Even in traditionally affordable housing markets like those in the Midwest, attractive neighborhoods’ inventories are starting to tighten as new construction becomes more complicated and home values rise. For example, in central Ohio, the new-home market has remained relatively flat due, in part, to cost of land and new regulations.
Investor Insight: As affordability issues expand around the country, investors should watch their markets closely for shifts in buying patterns and adjust investment strategies accordingly.
Rob Vogt, president of Vogt Strategic Insights, called the local market “the bestseller home market we’ve had in…the history of central Ohio,” and warned that it is becoming increasingly difficult for builders to construct single-family homes for a price that allows them to place them on market for less than $250,000.” He went on to note that more renters are opting to remain in rental properties rather than purchase homes that do not fit their needs and wants or that are not located in areas where they wish to live.
Nationally, home values are up nearly six percent over a year ago, while average wage growth has grown about 2.5 percent. This is creating an increasingly tight inventory of affordable homes, which are properties that can be purchased by a household earning median income in an area using roughly a third of its annual cumulative salary. Given that the largest home-buying population in the country right now, Millennial buyers, are also first-time homebuyers, this inventory shortage and affordability crunch could create a volatile combination even in traditionally affordable markets such as the Midwest and Southeast.