As of the publishing of this post, there are 2,700 homes actively for sale (not in contract) in the Central Ohio Multiple Listing Service (MLS). This includes all of Franklin, Delaware, Fayette, Licking, Madison, Morrow, Pickaway and Union Counties and parts of Athens, Champaign, Clark, Clinton, Fairfield, Hocking, Knox, Logan, Marion, Muskingum, Perry and Ross counties.
To help put this into perspective, there were 4,784 active listings in June 2019 according to Columbus Realtors. That’s a 43 percent drop in available homes from a year ago, and 2019 was a sellers’ market, meaning there were more buyers in the market than there were sellers. Even worse, of the 2,700 homes for sale, only 855 are priced at $220,000 (the median prices for all homes sold in April 2020) or less.
ISSUES FOR BUYERS CAUSED BY LOW INVENTORY
These statistics create significant challenges. Most pervasive of which is a lack of affordable housing. The average home buyer is in search of a home in the mid $200s, and with such a small number of homes for sale in that price range, many find it difficult to find desirable housing.
Adding to the stress of finding a home, new listings sell in a matter of days, if not hours. Buyers must be prepared to setup a showing, decide if it’s “the one,” and make their offer quickly. Then, the waiting game begins.
Competition amongst buyers has caused multiple offers to be the norm rather than the exception. And while this has been the case for at least the last few years, you are more likely to compete with more people for a home now than you did even just a few months ago. In some cases, sellers have as many 30 offers from which to choose. That means that there are several who must deal with the disappointment of not getting what they want.
Additionally, home prices are rising quickly. It’s a simple example of the causal affect of supply and demand. More buyers than sellers are driving home ownership costs higher with Central Ohio median home prices rising more than eight percent since last year. For example, a home that was $200,000 in 2019 now costs $216,000, and in terms of a mortgage, that adds about $70 monthly to the payment.
There is some good news, however. Historically low interest rates have fallen to new all-time lows. Bankrate.com lists the average 30-year fixed rate at 3.39 percent, down from four percent in June 2019. That difference more than makes up the mortgage payment difference caused by yearly price gains. A mortgage on $216,000 at 3.39 percent saves approximately $74 over the same amount at last year’s rate.
ISSUES FOR SELLERS CAUSED BY LOW INVENTORY
Sellers who need to sell their current home in order to buy another have unique issues. In some ways, this situation is fueling market conditions. Sellers are hesitant to sell because they can’t find a home to replace what they have. It’s a chicken and egg dilemma. No chickens means no eggs, and no eggs means no new chickens. See where we are going?
The old way way to deal with is is to make the purchase contingent on the sale of the existing home; however, competition amongst buyers is making this a less likely option. In multiple offer situations, the seller often has the luxury of choosing from other buyers without such a contingency. When that happens, the buyer who must sell first frequently loses. The reason is simple. Transactions sometimes fail. Inspection or financing problems are just two of the reason why, and you are asking the seller to assume the risks on two properties – theirs and yours.
Here are potential alternatives to a home sale contingency:
- Obtain a bridge loan or financing that allows you to purchase without selling first.
- Sell your current home and move into temporary housing while finding your next place.
- Consider a new build. Many builders will accept a home sale contingency, which is usually released at a pre-determined stage of the building process.
WHEN WILL THE MARKET CHANGE?
This is essentially a question requiring a crystal ball, which we don’t have, but here are are potential outcomes.
As we recover from the consequences of COVID, people will become more comfortable with listing their home for sale. We have been in a sellers’ market for years now, and current events have exacerbated it. No one really knows when this might change, but some signs show the improvement has already begun.
Builders start building more homes. Columbus’ landscape has changed dramatically – read less available land – over the last several years and lot prices have escalated to the point that building lower priced homes is not as viable as it once was. Less building has contributed to the log jam (no pun intended) of buyers, and more construction at any price may still help.
Rising interest rates might slow buyer demand and allow the market to balance itself. This can be a double-edged sword, though. People interested in buying are already getting squeezed out and higher interest rates will aggravate that problem. Not to mention, a decrease in overall home sales can cause other economic challenges.
WHAT IF YOU WANT OR NEED TO BUY OR SELL
For buyers, patience will be necessary. Eventually the right home will present itself. You should make sure you have your team in order so that you are prepared to pounce when it does. Have a good loan officer and your pre-approval ready. Make sure you have also enlisted a skilled real estate agent who can navigate the process and give you advice that increases your odds of coming out on top.
For sellers, the market is in your favor and you wield the power in most cases when it comes to setting the terms of the sale. On the other hand, if you are buying, you must have a real estate agent in your corner who can navigate and time the sale and purchase.