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?
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.”
Homebuying and COVID-19
And now, to top it all off we are living in the world of COVID-19. When thinking about a new home, you’ll need to consider some updated procedures including virtual tours, private showings instead of open houses and even new steps within the lending process.
One change includes explaining any variations in income and re-verifying employment within five days of closing. While this might sound daunting, Vieira explained, “If the borrower had any period of time when they were out of work that needs to be documented and explained by the employer. If they had a reduction in income, it would need to be documented and explained by the employer. Keeping all your pay-stubs up until closing is recommended and providing a good contact in your company’s HR department is required because most of those last minute VOE’s [verification of employment] are just a phone call to the employer to make sure the borrower is still employed.”
Despite the stubborn seller’s market, buyers can still take advantage of conforming and government-backed programs, which offer fixed-rate loans with down payments as low as 3% with no minimum borrower contribution. “This means the down payment can come from a gift,” Vieira added.
AAA Northeast serves as a broker for low-rate mortgages. The company also offers a number of other mortgage products, including reverse mortgages, home equity loans and lines of credit. Regardless of where you might be in the process, AAA is happy to walk you through the best options.
Learn more about how AAA can help you with your mortgage.