There are signs the housing market may be loosening up for people looking to buy a home this year. They come at the end of a years-long seller’s market.
If you are looking to purchase a house, the buyer’s vs. seller’s market talk may sound familiar. But what does it mean for getting the right home at the right price?
According to the U.S. Census Bureau’s latest residential sales data, the median sales price of a new home sold in March was $302,700 – about $35,000 less than the median sales price of a new home in the same month last year.
This is combined with a 5.4% drop in sales of existing homes over the same one-year period, states the National Association of Realtors. This means there may be more homes on the market with smaller price tags.
Though change is in the air, the market is still somewhat tight for home buyers. “Nationwide, it’s definitely a seller’s market in most areas of the country right now,” said Steven Vieira, AAA Northeast’s director of mortgage sales and operations. “The inventory is very low.”
There are rural pockets of the country where this is not the case, Vieira said. But in urban areas of the Northeast such as Rhode Island, Massachusetts and Connecticut, it’s still “heavily a seller’s market,” he said.
Buyer’s vs. Seller’s Market
“A seller’s market is defined as anything with less than six months of inventory available to buyers,” said Vieira. “If I list my home and there’s a high probability of selling my home within two months, that’s a seller’s market.”
The main difference between a buyer’s or seller’s market is that in a seller’s market the sellers are basically calling the shots, he said. “Buyers have to go in with the most competitive offer because there will be multiple offers on the table. They may need to act quickly,” Vieira explained. “We recommend they are pre-approved for the mortgage before putting in an offer.”
Vieira suggests getting questions and paperwork in order before going in to look at a home. “Often, when it’s a hot seller’s market, the seller will say, ‘You can have an inspection, but you’ll be responsible for fixing anything that’s wrong with the house,’” he said. “In a normal market, that can be negotiated in the sale price.”
Compare this to a buyer’s market when shoppers have more bargaining power. “If there’s enough supply in the market and it takes six months or more to sell your home, it’s a buyer’s market,” said Vieira. “It typically means there are more incentives. A seller may offer to pay the closing costs. They may offer to lower the sale price. Many different incentives can come in.”
Home prices are typically headed down in a buyer’s market, he said, and there is competition among sellers. “They have to make sure homes are competitively priced. The buyers are in control,” Vieira said.
The Housing Market Crash
The current seller’s market was driven, in part, by the housing crisis. “There’s still some residual anxiety from the financial collapse of 2008,” Vieira said, after which banks became more restrictive in their lending practices.
Vieira pointed to the Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly referred to as simply “Dodd-Frank.” The law ushered in massive reforms to the financial industry, along with rules designed to protect consumers from predatory-lending practices. Passed in 2010, the law made it more difficult for many would-be homebuyers to obtain financing.
Home values, on average, fell more than 23% from their peak following the economic crisis, Vieira said, but have since rebounded in most major markets. “The median home-sale price has risen constantly since,” he said. “This tends to knock out first-time homebuyers.”
Fortunately, the economy has come a long way. Vieira cited the nation’s low unemployment rate – which, the U.S. Bureau of Labor Statistics reports, was at 3.6% in April – as proof of further recovery.
The improved economy has led to more positive consumer sentiment, he said. “People are ready to buy a new house, where they were concerned in the past,” Vieira said. “We don’t see so many upside down homes. We have sellers who can now get what they’re asking for.”
Vieira expects more housing inventory to crop up over the summer. “Once that inventory comes onto the market, we’ll see a more normalized market,” he said.
Despite the stubborn seller’s market, buyers can still take advantage of government-backed programs through lenders such as Fannie Mae, which has a fixed-rate program that offers down payments as low as 3% with no minimum borrower contribution. “Which means the down payment can come from a gift,” Vieira added.
AAA Northeast serves as a broker for low-rate mortgages through Fannie Mae and the Federal Housing Administration (FHA). The company also offers a number of other mortgage products, including reverse mortgages, home equity loans and lines of credit.
Learn more about how AAA can help you with your mortgage.