Interest Rates Are Low, but Demand Is High: Is Now the Time to Buy a Home?
While the COVID-19 pandemic has impacted every industry, the real estate market has experienced dramatic shifts that are projected to continue far into 2021 and beyond. As of September, national home inventory was 39% lower than the same time last year, and the number of newly listed homes dropped 13.8%. Meanwhile, demand from buyers, buoyed by lower interest rates, has never been higher. This unique set of factors has created a strong seller’s market, particularly for single-family homes, while prompting buyers to strategize how best to outbid their competition.
If this sort of high-stakes pursuit leaves you feeling uneasy, you’re not alone. But here’s food for thought: Top real estate experts believe there are plenty of reasons to buy now, even in a market that tends to lean favorably towards the seller.
“I think if you’re going to be in a home for at least three to five years, it’s always time to buy,” says Ron Shuffield, President & CEO of Berkshire Hathaway HomeServices EWM Realty, serving the Greater Miami market. “With today’s historically low interest rates, buy as much as you can afford—but don’t stretch your mortgage amount to a point where you feel captive to your monthly payments. Real estate values are built on supply and demand, and most of our markets are experiencing the lowest number of months’ supply we have seen in 15 years. So in the months ahead, we’re anticipating a continuing market-wide sellers’ market.”
To better understand the ever-evolving home-buying process, we spoke with real estate experts, like Shuffield, who represent various “hot” markets across North America.
Q: South Florida is increasingly popular, particularly with out-of-state feeder markets. What does inventory look like right now, and are there any segments that favor buyers versus sellers?
Ron Shuffield: Single-family homes in all price ranges across Greater Miami have seen a surge in the number of sales since early summer 2020. In the under $1 million single-family market, the optimum supply is six to nine months. There is currently only two months’ supply in this category, even less in some neighborhoods. In the over $1 million market, a balanced market can comfortably handle 12 to 18 months’ supply. Today’s single-family supply stands at nine months. The number of sales in excess of $5 million over the three months through November 2020 is up 306% over the same period in 2019, leaving 13 months of supply. The condo market, however, is not as strongly favorable toward sellers. Sales in the under $1 million condo market are up only 8%. In the over $1 million condo market, the good news is that sales are up 41% for the three months ending in November, but the $1 million-plus condo market still has 33 months of supply. With sellers within this segment of the market offering more attractive pricing, buyers today are finding growing opportunities with solid values.
Q: In terms of the buying process in 2021, what should those seeking new homes understand before starting their search?
Russell Rhodes, Regional President, Berkshire Hathaway HomeServices PenFed Realty Texas: Typically I could take a potential buyer to look at a home and then they could take a few days to think about it. But, now, if it’s in a price range that’s highly desirable, the homes are selling immediately. You don’t have that luxury of time to make a decision. I’m not the type of agent that has ever rushed my clients, and I personally can’t stand to be rushed. Unfortunately, now in many instances, the client has to self-discover that when they snooze, they lose. After you lose several, you start having a better understanding and you understand that maybe you have to make a decision very quickly. Everything has a sense of urgency which is, for some buyers, a big issue. It’s difficult for them because that’s not normally the way their minds work or what makes them comfortable.
Q: What are some concessions a buyer has to consider in a competitive market?
George Patsio, Owner of Berkshire Hathaway HomeServices Commonwealth Real Estate: The most popular concession a buyer can make is to have flexibility in the closing date, accommodating the seller’s timeline. This has the least amount of risk and burden to the buyer if they can meet the seller’s needs. Positioning that the home inspection will be capped at a predetermined dollar amount can also be well received by sellers. It removes the post-offer negotiations, which can be significant following an inspection if issues with the home are discovered. However, the buyers should only waive these contingencies if they have the financial (and emotional) stability to move ahead to repair any issues post-closing or proceed if the property doesn’t pass inspection. A very risky option is to remove or limit the mortgage contingency. If a buyer is confident they will be approved for a mortgage due to their financial strength, they may consider making the offer subject only to a satisfactory appraisal. There is significant financial risk associated with this tactic if the mortgage is not approved, so it should only be considered if that risk is assumed and understood by the buyer.
Q: Is it worth waiting to buy later in 2021, when the market could balance itself out?
Jason Waugh, President & CEO of Berkshire Hathaway HomeServices Northwest Real Estate: All we can advise people on is the data we have at our fingertips today. The challenge for most people is the amount of money they have for a down payment. If you compare fair-market rents to the average person’s mortgage, it makes a lot more fiscal sense to own than rent today. If you’re not sitting on a lump sum of cash for the down payment, that’s usually the barrier to entry. But by waiting to buy, you run the risk of a rate increase, which means a higher monthly mortgage payment. If you study real estate cycles, 2020 will be eight full years since we came out of the Great Recession, and it’s about every seven to nine years you see a market correction. From a historical perspective on the length of time you spend in any one cycle, and this eight years is probably, if not the greatest, the second greatest run of all time in the real estate market. Are we due for some sort of correction? The history would say yes. But there aren’t those factors that have led us into the past recessions, like reckless lending standards.
Q: How have lower interest rates impacted the luxury segment of the market specifically?
Sacha Brosseau, CEO, Berkshire Hathaway HomeServices Quebec: The luxury segment is benefiting because most high-net-worth individuals understand the concept of cash flow and the cost of borrowing money. When you can get mortgages as low as 1.75% for five years, you’re a lot more enticed to buy that bigger property because you’re not going to need to put $2 million or $3 million upfront. You’re happy to put 20% to 30% down and finance the rest because it’s costing very little to borrow. So it’s a lot more attractive, as long as your cash flow permits it. The luxury market is definitely benefiting on the purchasing side because of the current factors in place. We’ve seen properties even at $2 million where people are coming in with multiple offers. When you start going into the $3 million-plus market, there is activity, but not as many with multiple bids. It’s great to see that those transactions are occurring, which in turn has raised the median price in the city from what it was significantly to a much higher price.