The potential of a mass frenzy
I fear we’re all coming down with a temporary madness. Is it something in the water, is it love or is it a mass frenzy that’s starting to raise its greedy head – again?
For a couple of months now I’ve been writing about and noticing real estate prices both in Florida, and particularly on Anna Maria, reaching pre-bubble-bursting levels. And we’re not alone. Nationally, there is what some real estate professionals are calling artificial sales numbers in some regions.
The real estate eggheads have put their pointy heads together and have come up with some of the reasons they think this is happening. For starters, there is a shortage of homes for sale. The ideal is to have a market balanced between buyers and sellers where there are enough available homes to satisfy demand.
Generally, that type of market is defined as six to seven months of inventory per the National Association of Realtors. In April, the available supply of single-family homes in the country was 5.3 months and in Manatee County it was 4.3 months, substantially lower than would be considered a balanced market, on top of a 2.6 percent decline in inventory.
Even the real estate eggheads can only speculate the reason for the lack of inventory. Some believe homeowners who bought at the top of the market are reluctant to sell because the value of their homes went down so far in the financial crisis that it still hasn’t recovered. Or some homeowners are starting to see the market going up and are holding out for higher prices. The overall slow economy and poor job market also has to be factored into the real estate market, which partly depends on job relocations adding inventory to the marketplace.
The other big factor creating the frenzy mentality is the historically low interest rates. We’ve been enjoying interest rates for primary mortgages in the low 4 percent range for a very long time, but that may be coming to an end. The feds are continually sending warning signs that rates may be going up, pushing buyers into making decisions before that happens.
So what do you do if you’re a buyer in this market? The first thing you do is get past the frenzy. Compulsive buying at inflated prices for something that you may not really be able to afford – I can guarantee you will lead to trouble down the road if prices take a turn down. Full price offers, over listing price offers and bidding wars are happening all over the country, leaving the winning buyer feeling like he has just overpaid for a Grecian urn at an auction. Set a budget and stick to it.
Buyers in an effort to secure a home are also starting to waive contingencies that are standard in a contract of sale. Typically a mortgage contingency is part of a contract releasing the buyer if they are not approved for a mortgage for either a problem with their finances or, what is frequently happening now, the house doesn’t appraise.
In a rapidly appreciating market it can be very difficult to find comparable homes that have recently sold, placing the buyer in the position of coming up with more cash or moving on. In addition buyers are also waiving their right for a home inspection in order to sweeten up their offers. To enter into a contract of sale on a home without either one of these contingencies would be a mistake regardless of the nutty market.
The national madness we’re experiencing makes it a good time to sell, but possibly a risky time to buy. Whatever you do, stay away from the madness. Hopefully it’s only temporary.