All signs so far show a market frenzy this spring, as sellers traditionally favor springtime for listing homes, with this season as an optimal time to sell in 2022. Let’s delve into how buyers can best navigate this red-hot real estate season. 

Understand that you’re entering a busy buying time 

As the spring homebuying season got off to an early start this year, it’s well underway. Rising mortgage rates have prompted more homebuyers to hit the market in hopes they’ll lock in a good rate before rates go any higher. Though you would do well to remember that it’s no time to panic; these rises are from historical lows and aren’t expected to increase dramatically. Some perspective — and some deep breaths — will serve you well during the spring buying season. 

Seek Opportunities Amid Challenges 

Best not to candy-coat this one: the spring homebuying season does present some significant challenges for buyers. Both mortgage rates and home prices are on the rise, while the U.S. housing inventory is at a near-record low. According to the National Association of Realtors, as we headed into Spring 2022, inventory was down over 15% from the year prior. Yet home buyers seem undaunted, eager to purchase homes this spring despite the challenges they’ll have to navigate. And you shouldn’t be daunted either. That perfect home, and the financing for it, are out there. 

Strategize for a Seller’s Market 

It’s a fact: conditions are favoring sellers in today’s real estate market. So, the wise homebuyer should shift their tactics accordingly and follow a few of these tips: 

• Don’t Fall for a Deferred Showing. Sellers often use this tactic to create a false sense of a demand for a home. An agent will list the home in the Multiple Listing Service but defer showings for about a week, with an open-house time on one day, usually Saturday or Sunday. It’s to create a busy open house and give the appearance that there’s lots of competition.  
   
• Embrace Flexibility. To land your dream home, you may have to be more flexible than you would otherwise normally be. This may mean being open to changing your move-in date and keeping any contingencies you have in your offer to a bare minimum — just the basics, such as an inspection or an appraisal if required by your lender.  
   
• Do Your Online Homework. For lots of homebuyers, visiting open houses can turn into something of a pastime, enjoyable strolls envisioning their lives in new homes.If you’re serious about finding your next property, each in-person visit must count, so thoroughly review every listing online and narrow down the list of those you’ll visit to just serious contenders.  
   
• Adjust Your Budget Down. First, get comfortable with a simple fact: most homes sell for more than their list prices in the current market. How much more? That varies, but it is common for homes to sell for between $50,000 and $100,000 over listing prices. You should shop accordingly. For example, if you get pre-approved for a $400,000 mortgage, shopping in the $300,000 range would be wise. Having a higher pre-approval amount will give you a competitive edge in bidding and ensure you don’t go over your budget. 

Prepare for a Bidding War 

Yes, the prospect sounds unpleasant, as nobody wants to enter a bidding war, but chances are fairly good you’ll find yourself in one. Last spring, the bidding wars hit a fever pitch, with over 74% of offers on homes meeting with competition. Here are some tips to ready yourself for a bidding war: 
 

• Loan Pre-Approval. In today’s searing-hot housing market, the buyer who has a mortgage pre-approval letter in hand, has the clear advantage. It’s the next-best-thing to offering all-cash — and on equal footing in some cases — as having a pre-approved mortgage always makes an offer more attractive to a seller compared to that of a potential buyer without financing in place. 
   
• Have Your Financing Team Ready. Be prepared to hit the ground running when you find the perfect home by already being established with your City Lending loan originator. It is helpful to also know who you plan to use for your homeowners insurance, home inspection, title services, and loan closing.  
   
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  Consider an Escalation Clause. First-time homebuyers may assume that in a bidding war, competing bids get increasingly higher in a back-and-forth. But many sellers ask for a buyer’s highest bid at the onset. However, this bid can include an escalation clause, an addendum telling the seller that you’ll go higher if there’s an offer that’s higher than yours, usually with a maximum amount specified.  
    
• Offer an Appraisal Gap Guarantee. You get an appraisal gap when a home gets appraised for less than an offer. Which is a problem; lenders don’t like to loan more than a home is worth. To guard against this potential issue, you can offer appraisal gap coverage, telling the seller that you can make up the difference with a higher down payment, offering the seller peace of mind and upping your chances you’ll come out on top in a bidding war. 

• Write a Personal Letter. To distinguish yourself from other bidders, you might want to include a compelling personal note with your offer. Don’t overdo it — short and sweet is best — but if you can convey a heartfelt reason you are the right person for this home, it might be the small push that swings the deal your way. Yes, a real estate sale is a financial transaction, but it’s also a personal one. Many sellers feel emotional about moving on from a home they may have lived in for several years – knowing it is going to someone who feels a special connection to the property can make a big difference.  

Just as days get longer, flowers bloom, and woodland creatures awake from hibernation, spring means a busy homebuying season. And it’s the perfect season to partner with City Lending and its suite of loan programs to fit the needs of every borrower. 

It’s a simple fact: home prices are rising. Considerably. The combustible combo of low interest rates and low housing inventory has lit a fire under the housing market and brought it to a boil that won’t simmer anytime soon. Homebuyers have been, and will continue to, pay over list prices. But should you? Let’s delve into the details. 

Why would one pay over the listing price? 

It may seem like a real risk. If you pay more for a home than its listing price, and that price is fair for the area you are taking on negative equity. Therefore, building equity in your home will take longer, affecting a range of things: how long you may have to pay for private mortgage insurance, when you can refinance your mortgage loan; and when you’ll be able to get a home equity loan. Plus, if you decide to sell the home anytime soon, there is a chance you’ll take a loss. While all these things are true, it still makes sense for lots of homebuyers to pay above the appraised value of a home. 

Rising home prices is one reason. While we may not get the record level of increases in home prices we’ve witnessed in the recent past, no experts expect we’ll see significant price drops. Rather, it’s more likely that moderate price rises are on the horizon, and that your home will one day be worth significantly more than when you bought it. Here are some things to consider when faced with the prospect of paying over the list price: 

• Affordability. If your mortgage loan doesn’t cover the cost of the home, the shortfall is coming out of your pocket. This is in addition to the required down payment. If you can handle that cash outlay without depleting your savings, you might wish to pay. 
    

• Longevity. Beyond the home’s price tag, you’ll have to consider closing costs, moving costs, and the possibility of home upgrades and repairs. If you plan to stay in a home for under five years, the investment may not pay off no matter where home prices are when you decide to sell. If you’re in it for the long haul, it may be the best investment you ever make. 

How does paying over the appraised value affect my mortgage? 

Lenders generally don’t finance mortgages for more than the appraised value of the home. Which makes knowing how much you can afford to spend with a pre-approved mortgage even more important. And as you’ve got about a 50/50 chance that the house you want to buy will sell above its listed price, you might want to shop just below your loan limit. That way, when you find the right house, you’ll know there’s a cushion and that the mortgage can come close to covering the selling price. 

How much are home prices rising? 

According to the National Association of Realtors, the median home price across all different types of housing was $350,300 in January 2022. That’s a rise of over 15% from January 2021. The jump wasn’t an atypical spike, a continuation of a long-running trend, marking the 119th consecutive month we’ve seen of increases, the longest-ever such trend in recorded history. And going forward? Based on analysis by the American Enterprise Institute’s Housing Center, the forecast for 2022 looks to be an overall rise in home prices of 12%. 

Are things the same all over the country? 

No. California is seeing some of the nation’s widest discrepancies between home list prices and selling prices, with Oakland, San Jose, and San Francisco reporting some of the nation’s highest divides. In San Francisco, a staggering 70.8% of houses sold for more than the asking price. Nationally, that number is lower, with about 50% of homes selling over their list prices in 2021, according to Redfin. Which was 23% higher than the previous year’s numbers for houses that sold over list prices. 

How do I know if a list price is competitive? 

You may go into the house-hunting process understanding that list prices are high these days, and you may very well pay more than the listed price. But how can you tell if the list price is competitive in the first place? Your real estate agent can do a comparative market analysis (CMA) of similar property sales in the area to make a side-by-side comparison. These reports are often used by sellers to set the prices, but prospective homebuyers can also use them to evaluate prices to make competitive bids. 

Where is the housing market headed in 2022? 

All signs say that the competition among home buyers will be just as fierce as it was last year. Homes are selling faster: in January 2022, the national average home sales time was 61 days, 10 days faster than in January 2021 and about a month faster than during the years prior to that. The prices of homes are rising, we saw a jump of more than 10% of median listing prices in January 2022 over January 2021. But the outlook isn’t dire — lots of market watchers expect this appreciation in home prices to slow over the course of 2022. Redfin’s chief economist Daryl Fairweather predicts that when average mortgage rates hit 3.6%, we’ll see competition cool to match the more moderate levels we had in 2018. 

Buying Can Still Beat Renting 

Even with the recent rise in home prices, buying a home can still be more affordable than renting in lots of places. According to Realtor.com, the per-month cost of buying a home is less than renting in over 75% of America’s largest metropolitan areas. Government data shows that rents are rising across the U.S., climbing 3.8% over the last year alone. The national average pales in comparison to some of the country’s hardest hit areas, such as Orlando with almost a 30% rise in rental prices, or Austin with rent prices jumping 40% and more. With rent high everywhere, and no indications they’ll drop, buying a home may make more sense now than ever. 

No matter the price you pay for a new home, City Lending has a range of loan programs to suit your needs. Contact a loan specialist today to talk about your next move.