Have you noticed that everyone is talking about real estate again? Whether it is about multiple offers on a house down the street, sales prices wildly over list, or crazy new build wait times, it is no secret that the basic factors of supply and demand are driving real estate prices both locally and nationally.
But why are houses suddenly in such short supply and, more importantly, what does that mean for buyers and sellers moving forward?
It All Goes Back to 2008
First of all, our hot market is being driven by a lack of inventory. This is not a new thing — the problem of housing inventory has been growing for years. The incredibly slow recovery from the 2008 crash resulted in builders underbuilding while at the same time, the home buyers that aged in delayed their purchases due to financial instability, interest rates, student loans, and tiny house trends.
By the way, those millennial home buyers who didn’t buy years ago are suddenly coming to market now with everyone else.
Challenges for Builders
While new builds started to take off again about three years ago, homebuilders quickly started running into a variety of issues that curbed the speed with which they could bring homes to market. The cost of purchasing and developing land increased. Finding qualified labor in the trades has been a constant issue.
In the past 12 months, lumber costs have nearly tripled and the pandemic has exacerbated supply chain issues, resulting in shortages in building materials. Builders are now having to limit new sales and raise prices simply because they are having challenges executing what they have in the pipeline.
Big Buyers Are Devouring Supply
The undersupply is also the result of institutional investors playing the real estate game. According to John Burns Real Estate Consulting, about 20 percent of all single-family homes in the United States are being purchased by institutional investors. From our own experience in the field, we are seeing cash investors nonchalantly paying 10 percent over list price for properties. By aggressively bidding, they are raising home prices and eliminating opportunities for normal homebuyers.
Furthermore, these investors are buying to hold. They are banking on rental cash flow and equity growth, and their properties are not re-entering the general inventory as they might otherwise.
Staying Put
COVID quarantines, low interest rates, and rising home prices created the perfect cocktail for homeowners to stay put. Quarantines kept many potential sellers from moving forward with a move.
Others took advantage of low interest rates, cashed out some equity, and by the time they finished remodeling, the option to move was no longer really financially viable or they just liked their renovations enough to stay. Other sellers who may have considered a move, were priced out of the market by the time they were ready.
Demand from Every Corner
The flip side of the supply issue is, of course, demand. We have written about increasing demand frequently in our articles. Demand is being driven by our Valley’s economic vitality, explosive population growth, investors, more millennials and Gen Z buyers ready to purchase, low interest rates, pandemic lifestyle shifts, politics, taxes, stimulus checks, and the new opportunities afforded by work from home.
The takeaway from all of this to share with friends at your next happy hour is that all of these factors of diminished supply and increased demand have hit the market at the same point. It is a true perfect storm that will keep prices moving forward and won’t normalize overnight.
The inventory shortage is real and was predicted. The demand is real and not diminishing.
Our advice to sellers is simply — have a plan. Prices are rising nationwide, so know where you are going before you sell and have a great agent lined up before you take the plunge.
Our advice to buyers is also simply — have a plan. If you don’t want to spend six months throwing crazy offers at random properties, work with an agent who can expertly guide you through today’s market. This market is moving at light speed and is literally changing weekly. Get the best representation and make sure you completely understand the deal you are entering.
Rest up and get ready. Buying and selling in today’s market is an adventure and getting educated about the process is the most important first step.
As always, we are available seven days a week to answer your real estate questions, so please don’t hesitate to give us a call. We love this business and we are passionate about providing our clients with the best representation!
John and Natascha Karadsheh are co-owners of KOR Properties, a boutique real estate brokerage serving the Valley of the Sun, and the creators and founding sponsors of Mesa Food Truck Fridays. John has been a Multi-Million Dollar producing agent for over 17 years and is an Accredited Buyers Representative (ABR) and Certified Residential Specialist (CRS), and is the Chairman on the Arizona Regional MLS Rules & Policies Committee.
Natascha is an Associate Broker of KOR Properties, a Multi-Million Dollar Producer, Past-Chair of the City of Mesa Economic Development Advisory Board and the founder of the Falcon Business Alliance.
You can reach John at (602) 615-0843 and Natascha at (602) 909-4995, or visit their website: KORProperties.com.