The U.S. market needs more homes to sell. Homes prices across the nation are increasing at brisk pace, 7.4% in the past year according to Zillow. They have the current average home value at $199,200 and project that to continue to climb over the next year. If you considered buying a home one year ago, when the average price was $186,000, you’ve missed out on potentially $13,000 in equity. That equity could have already re-cooped your down payment.
Meanwhile, newly listed homes are flying off the market at a record pace. The median days on market for a home for sale has dropped 38% in six months. The average days on market was 96 days in January 2017 and now stands at 60 days in June 2017 according to realtor.com. Active listings are also down 11% year over year.
Lawrence Yun, chief economist of the National Association of Realtors (NAR), spoke with Scotsman Guide News about why stubbornly low levels of home inventories for sale are creating a drag on the market. “Right now, because new homes are not adding to those homes on the market, people should be concerned about whether they should stand up and sell their property. At the moment, the homebuilders are a key to the solution, but unfortunately the increases being brought into the market has been grossly inadequate — only a marginal increase when we need a great, fast ramp up.”
This decrease in supply and increased demand is the recipe to create bidding wars again in the housing market. In situations where a home for sale is receiving multiple offers, a borrower can increase their position by being “pre-approved,” not just pre-qualified.
Realtors are requesting pre-approvals and Alliance Home Loans has a Conditional Approval for Prequalification Program (CAP) to conditionally pre-approve borrowers before making an offer. This makes the borrower's offer more credible and streamlines the processing and underwriting process once an offer is accepted. That pre-approval means the house is more likely to close on time, and that makes borrowers, sellers and realtors happy.
So is the market headed for ‘a crisis’ unless housing shortages are relieved?
Yun says, “A crisis not in terms of a housing-market bubble and crash, but a crisis in terms of affordability. The economy is doing fine — consistently over 2 million job creations in each of the past four years and likely another 2 million this year. With job creation, this is creating housing demand. But if there is inadequate supply, the prices will get pushed up way above people’s income growth, and that will lead to affordability challenges.”
The likely scenario is that homebuilders will marginally increase supply. “Over the next couple of years, I believe home prices will outpace people’s income. It has been the case for the past five years, and it is unsustainable,” says Yun.
Right now can be an ideal time to buy. Potential buyers can contact Alliance Home Loans to speak with a licensed loan originator to learn about our home mortgage Conditional Approval Program.