In 2016, my real estate team started seeing a big change in the local Kansas City real estate market. For the first time in a very long time, many of our listings were getting multiple offers in the first few days. At first, I wasn’t sure what was happening. I wondered if maybe we were pricing my seller’s homes too low. I’ve always sold my client’s homes much faster than the average agent, but now we were getting three or four offers in the first two or three days on the market, so something had clearly changed.
It’s always been my strategy to help my clients understand that it’s within their best interest to update the home with a few low-cost changes (new lighting, a new faucet in the kitchen, fresh paint, new mulch in the landscaping, etc) and we always discuss making all necessary repairs before going on the market. Because of this, I was already pricing my client’s homes at the very top of the market. When a home is truly “move-in ready” buyers will always be willing to pay a premium.
I started looking at the research and found that although the population in America was growing, the available housing (single-family homes, townhouses, apartments, etc) was stagnant. During the years of 2008 through 2012, banks were tightening their monetary policies. They were not going out of their way to give big loans to land developers and home builders. The National Association of REALTORS® had determined that we missed out on building an estimated two million homes during those years, and now we were feeling the effects of that shortage.
It was at this point that we decided to test the waters and begin pricing our client’s homes a little over the market. The problem with this is the question of whether the home will appraise at that price. Obviously buyers were willing to pay more because inventory was tightening, but if the home didn’t appraise, we were concerned that buyers might expect the sellers to lower the price to the appraised value. As it turned out, many of the homes we sold $2,000 to $7,000 over market value did appraise (because the appraisers understood the market was rising), and the few we did have trouble with were negotiated out somewhere in the middle, or the buyers just simply brought more cash to closing to make up the difference. They wanted the home that bad.
Over the next two years, my real estate team started pricing homes higher and higher. In 2018 the news media finally caught wind of what was happening and started broadcasting that most of the United States was in a strong “seller’s market.” I remembered thinking, “Duh! You guys are a little late to the party,” but to be fair, that’s about the point that most other real estate agents became aware of it too. My team sells 10 or more homes every month so I guess we see the trends much faster than the average agent that sells one or two per month.
Today, in 2020 it’s gotten completely nuts. The inventory of available homes is even tighter and buyers are now willing to go $10,000 or more over the seller’s asking price in some cases. They’re willing to take the home in “as is” condition too. Some of them are even willing to waive the restrictions of the appraisal and agree to buy the home no matter what price the appraiser gives it.
Many people ask me, “I thought COVID-19 would have slowed that down?” Honestly, that actually made it even worse. Many homeowners needed to work from home during that time and they were concerned about their jobs, so selling their current home was the last thing on their minds, yet there were still hundreds of buyers that wanted to buy a home. Anytime a great home would come on the market, there could be ten to twenty buyers willing to make an offer. Even homes that were not in perfect shape were still seeing one or two people willing to pay the seller’s asking price. It was nuts!
Recently though in the last couple of weeks, my team has started seeing a shift again. Homes are still getting multiple offers, but not ten or twelve. It’s more like two or three buyers willing to compete. Please don’t misread what I’m saying, we are still in a very strong seller’s market and sellers are still in complete control, but we’ve simply stepped back into a “normal” seller’s market and I believe that’s where we will stay for the next year or so.
Some people think this pandemic will alter that seller’s market and cause home prices to drop, but I promise you it won’t. This is a very short term situation and there are still hundreds of buyers with good solid jobs that want to buy a home today. We still have a huge shortage of inventory and with the cost of new construction still rising to absurd levels, this problem is not going to get solved anytime soon. Home prices will continue to rise over the next year at least.
There are only two things that will cause home prices to stall out. 1) high unemployment over 10% and 2) if we see a larger than normal abundance of homes hit the market in the spring of 2021 (which I fully expect to happen because of so many that chose not to sell this year). Competition from too many other homes on the market is the most likely thing we’ll see beginning in February of 2021.