Should You Give Up or Keep Fighting for That Dream Home?
In a real estate arena dominated by investor syndicates and a stark lack of inventory, this essay uncovers the challenges and dynamics faced by individuals competing in today’s heated housing market. From the pressure to respond instantaneously to new listings to the daunting reality of bidding wars, we explore the adversities regular homebuyers encounter. This narrative sheds light on how investor groups wielding substantial financial power snatch up properties, making it increasingly difficult for single-family home seekers to find their place.
Three main takeaways:
- Impact of Investor Groups on Single Homebuyers
- The Reality of Rapid Response in Home Buying
- Strategies to Navigate a Low-Inventory Market
Is attempting to purchase a home in today’s market a testament to persistence and strategy, or is it a gamble where the odds are stacked against the individual buyer? Join us as we dissect the trials faced by everyday people in this tumultuous real estate environmentâwhat insights will you gain?
Where the dream of homeownership seems increasingly out of reach for many, a recent Buzzfeed article captured 25 critical issues that todayâs homebuyers are grappling with, from the dominance of investor groups and the frantic pace required to respond to new listings, to the competitive bidding wars, and scarce housing inventory…
This blog series aims to take a deep dive into each of these 25 Buzzfeed issues. Weâll explore every facet of the current market conditions. Each post in the series will tackle one specific concern, providing insights, expert analysis, and practical advice to help you navigate the complexities of buying a home in todayâs economic environment.
Whether you are a first-time buyer, a seasoned investor, or simply curious about the state of real estate, this series will provide perspective to help you make informed decisions.
With some of these widespread concerns laid out, letâs dive directly into one of the Buzzfeeed voices:
âIt’s the lack of available homes, honestly. I have the down payment. I’m pre-approved for a loan. I feel like itâs a mad dash to beat the 2â3 groups of people that have joined up and formed landlord businesses in my town. They compete with each other, so itâs tough as a person just wanting to buy a single home for my husband and me. I don’t want to have to check home-buying apps every morning obsessively and answer calls from our realtor immediately or risk missing out on a property and make an immediate offer on the spot. Or you get stuck in a bidding war. Itâs been going on for three years now. I regret not buying a home years ago. We werenât as financially stable, so we thought waiting and building up our savings was the responsible choice. Now, Iâm not so sure. Thereâs just nothing available in our area anymore.” âvibrantorc46
Okay! There is a lot to unpack here: the lack of homes, pressure from investor groups, bidding wars, buyer fatigue.
Market Insights: A Local Perspective
I donât know where you live vibrantorc46, but here in New Hampshire on May 8, 2024 at 10:14pm, there are only 1,333 single-family homes available for sale in a state that has over 6000 Realtors. If you want to be hopeful, you could bump the number of properties to 1,967 if you include mobile and manufactured homes as well as condos.
According to Paul Braid, through 2030 which is only six years out, New Hampshire âis projected to need 59,934 [housing] units, then another 28,461 between 2030 and 2040.â
Weâre not just talking houses here either. The vacancy rate for rentals in New Hampshire is 0.6%, and thatâs even with an unprecedented rise in rents, according to WMUR.
Understanding Real Estate Inventory
Thereâs a formula us Realtors use to determine how many months of inventory are available at any given time.
I really hate the term inventory in relation to real estate. When I worked at Dominoâs Pizza, we took inventory every night, counted all the peperoni slices, weighed out the cheese and compared what we had to what we sold. This accounting kept us in the sauce by predicting how much sauce we needed to order for the future. Except one time, my manager completely forgot to order the cheese and we were stuck in the middle of rush hour dinner time with zero cheese because we ran out. There was just no cheese to be had. Yet, when I walk out my front door, I see directly in front of me five houses. None of those five houses are currently for sale, but that is the operative word: currently. Unlike my pizza manager who forgot to order the cheese, weâre not going to run out of houses because the houses are just there.
What real estate gurus really mean when they say inventory is the number of houses currently for sale.
Absorption Rate Calculation
So, hereâs the math. First, we look back six months and discover 3,288 properties have been sold in New Hampshire. We divide 3,288 properties by the six months, and we get 548. This number is how many properties sold per monthâwhich is not accurate. Some months sell more properties than others. For example, in January 2023 less than 600 homes transacted and in June 2023 over 1200.
But for argumentâs sake 548 homes sold per month over the last six months. This number is called the Absorption Rate.
Now, we take the 1,967 properties currently for sale and divide by the Absorption Rate. We get 3.589416058394161, which is a weird number, so weâll round to 3.6. This is our Absorption Time. Basically, if no more homes come to market, in 3 months and 20 days we will have no more houses for sale.
A balanced real estate market is considered six months. Less than six months of inventory, we are in a sellerâs market. More than six months of inventory and we are in a buyerâs market.
I donât know about any of that.
Keep an eye on that red line in the graph, and youâll notice, with the exception of the Great Recession and itâs aftermath our monthly supply has barely crept above four months (BiggerPockets).
Andrew Syrios of BiggerPockets asks ââŚisnât it a bit odd that the only time this century that housing inventory exceeded a âbalanced market was in a real estate-driven financial crisis worse than anything seen since 1929?â
I think there is certainly a level of good old economics 101 here: supply versus demand. A low supply and high demand equal higher prices, and a high supply and a low demand equal lower prices.
Redefining a Balanced Market
I donât think a balanced market is just about the ratio of home sales to active listings, or a specific number of months of supply of homes. Instead, the definition for a balanced market should consider a broader range of factors, including affordability, the pace of price increases, and how these elements interact with local demand and the economic environment.
Expecting to see pizza but it’s just like the housing market… unexpectedly empty.
When we ran out of cheese at Domino’s, we improvised by spreading the cheese we had left very thin to cover more pizzas, and then we rushed to the grocery store to buy more, even though it was much more expensive than our usual supply. This is similar to what happens in an unbalanced real estate market. Buyers stretch their budgets thinner than they’d like, paying more for less because of the high demand and low supply of homes. Just looking at the number of homes available doesn’t give the full picture. We need to consider how affordable these homes are, how fast prices are rising, and the overall health of the local economy, which influences people’s ability to buy.
This shift in definition helps real estate professionals and buyers better understand market conditions beyond just supply and demand statistics, adapting to more nuanced economic signals and trends. So, vibrantorc46, weâve been wrapped in this housing shortage calzone longer than the three years you’ve been searching for your cheese.
But. Remember those five houses I see every morning I walk out my front door? The ones that arenât for sale. Yet.
It is in our very nature to move.
From the earliest days of our ancestors venturing out of Africa to colonize distant lands, to the great age of exploration where sea captains charted unknown waters, our history is a tapestry of movement and discovery. This drive pushes us beyond the familiar horizons, from the pioneering settlers of new continents to today’s astronauts peering out at the moon and Mars.
And we move for all kinds of reasons. For better jobs. Because you have new babies and need more space, or you kicked the kids out and you donât need as much room. Or move to districts with better schools or to be closer to prestigious educational institutionsâalmost every one of my moves was motivated by pursuing education. Or maybe you move because your spouse lives in California, but then you get a divorce and move back to New Hampshire. Or itâs just too dang hot in Florida. The average human stays in their home for thirteen years, and if you stay longer than those thirteen, you are just weird (but also probably smarter, so thatâs okay, but eventually youâll die, and your kids will sell your house anyway). The problem is that I, as a Realtor, have no idea whether those five houses outside my door, if the people are going to move or are ready to die or getting a divorce or whatever, unless I actually talk to them.
If you have the down payment lined up and ready to go and youâve been pre-approved for a mortgage, you are the exact person I am looking for. You are what in the real estate industry we call a âmotivated buyer.â There is no dilly-dallying here. It is: get right down to business; letâs buy a house. You are an absolute quick buck.
But there are two kinds of real estate agents. There is the agent who sits back and does Zillow, only they donât go to Zillow, they go to the MLS, which is where Zillow grabs most of its information. And they wait for a house to come to market. And once a house comes to market, they make a slurry of phone calls. The other agent watches the MLS as well, but they also knock on the doors that arenât for sale yet, because you donât know if your neighbor is going to move unless you ask, and once they put a sign in the yard, it might already be too late. You as a buyer want to hire an agent that is as motivated as you. Match energy for energy.
The Impact of Institutional Investors
While itâs natural for individuals and families to move for a myriad of personal and economic reasons, there’s another powerful force shaping todayâs housing marketâinvestment groups. These entities represent a significant shift in the dynamics of home buying, often complicating the landscape for those looking to purchase homes for personal use rather than profit. The regular Sheilaâs and their husbands find themselves increasingly competing against groups who view residential properties primarily as investment opportunities. These groups, flush with resources, move quickly and decisively, transforming neighborhoods and market dynamics.
Small investor groups own anywhere between 1 to 9 properties, and these are typically the âmom and popâ investorsâthe ones vibrantorc46 feels like they are competing against. Institutional investors normally own more than 1,000 properties including not only homes but business entities as well.
In 2021, according to Bankrate, institutional investors purchase 13.2% of all properties sold, and they purchased those properties often below median state prices
Due to their financial capacity, institutional investors can purchase homes in bulk, especially in growth areas, opting for cash transactions and buying homes as-is. The approach removes a substantial number of homes from the market, limiting the supply available to individual buyers and pushing more people towards renting, which in turn drives up rent prices.
Institutional investor influences are particularly strong in southern states like Texas, Georgia, Oklahoma, Alabama, and Mississippi. For example, in Lincoln County, Mississippi, over 60% of homes sold went to these investors. And, according to Evidence Matters, because these organizations are flush, cash sales have increasingly dominated in low-income Zip codes, driving rapid appreciation in home prices.
Image stolen from BankRate.com
The current real estate market certainly demands buyers remain perpetually alert.
Prospective homebuyers like vibrantorc46 find themselves having to constantly monitor real estate apps and websites, because hesitation or delay can mean missing out on a rare opportunity. This high-alert mode of operation requires significant mental bandwidth and emotional energy, which can be draining over time, and certainly triggers the fight or flight responseâare you going to fight and try to stay active in the market ready to buy no matter what or are you going to fly and simply drop out of the competition?
The Role of a Realtor in Today’s Market
Um, the simple solution to this constant state of high alertness is to hire a Realtor. But, if you feel you must answer calls from your real estate agent immediately, youâve probably hired the wrong agent. Remember, in New Hampshire alone, there are over 6000 Realtors and only 1967 properties for sale. Nationwide, approximately 1,515,837 Realtors (LeadsDeposit), and 1,532,382 single-family homes for sale (Redfin).
That averages one transaction per agent for the entire year. And not to brag, but Iâve had two closings in 2024, and as of the drafting of this blog post, two more under contract. Plus, looking forward, if I do zero marketing and zero lead generation for the rest of the year, I will have another two houses lined up and ready to go, and in addition at least one buyer. That puts me at seven transactions for the year. Most agents have about five transactions a year and 49% of all agents have only had one transaction or no transactions at all (Housingwire).
More concerning to me is that 73% of home buyers and 77% of home sellers never spoke to more than one agent before they hired (gaar). During a recent buyer consultation, I forgot to turn off my phone, and my clients hired me because of my ringtoneâwhich was the Imperial March from Star Wars. Iâve since changed that ringtone to Star Trek Next Generation theme music, but as much as I appreciated the business, a ringtone is a lousy reason to choose a real estate agent. I constantly tell people to interview more agents than just myself, but they never do.
Aligning Realtor and Client Goals
It is your Realtorâs job to frantically check home-buying apps every morning and also to coordinate around your schedule. That particular pressure should be almost completely removed from your purview. It is your Realtorâs job to make sure you donât miss out on an opportunity.
Sure, real estate moves fast, and this frenetic pace can overshadow important steps in the buying process, such as thorough home inspections and price negotiations, potentially leading to long-term financial consequences. donât make a quick knee-jerk decision on one of the most significant financial and personal decisions of your life. When the time comes to make a home purchasing decision, you should, thanks to your Realtor, feel well prepared and confident in that decision.
I have never once asked a client to play hooky from work to go look at a house. Part of my job is to negotiate scheduling with the listing agent.
Investor Retreat
The good news, of course, is that some localities are beginning to implement restrictions on institutional investments to protect the residential market for individual homebuyers and to preserve community integrity.
Although institutional investment in residential homes has been a significant trend, a 2022 Redfin report suggests a decrease in such purchases by 45.8% from the fourth quarter of 2021 to the fourth quarter of 2022, especially in regions that saw population surges during the pandemic.
âA lot of investors are on hold because they still see home prices declining,â said Elena Fleck, a Redfin real estate agent in Palm Beach, FL. âThe investors who are in the market are selective and aggressive. Many of them are only offering around 60% of the asking price since itâs so difficult to make a profit when flipping homes right nowâ (Redfin).
The investor retreat from the market has begun to wane, easing up on property competition in general. However, there is still a housing shortage. And,
“As it looks now, rates are likely to stay down from the 8% peak,” Nicole Bachaud, Zillow senior economist, told Yahoo Finance.
“Weâre still getting bidding wars with anywhere from 20-30 offers â though it still depends on the location and condition,” St. Louis-based Redfin agent Stayce Mayfield also told Yahoo Finance.
Your Realtor should be able to walk you through several strategies to help you win in a bidding war, the first of which is to search for properties anywhere from $10,000 to $50,000 below your budget, and then just expect to utilize that much âexcessâ budget in your offer.
Timing and Decision-Making in Real Estate
Look. The best time to buy a house is always yesterday, and the second-best time to buy a house is always now. Regret over not purchasing a home yesterday is palpable and understandable. However, it’s important to recognize that the decision to wait was made under different circumstances, based on a different set of financial realities and different market conditions.
If youâve been on this house-hunting journey for three years with little to no success, it may be time to consider a change. Finding a real estate agent who not only understands the urgency of your search but also demonstrates a proactive approach tailored to your specific needs can significantly enhance your chances of success. And, itâs entirely acceptable to fire someone who has forgotten to order the cheese.
