Seller’s Market: Low home inventory, interest rates keep houses flying off the shelf

Angie Mullings: First-time homebuyers are at a disadvantage in the current market.

In a balanced real estate market, the home inventory would typically last six months. Today, it’s 12 days in the Springfield market.

“It’s a historically low time right now for the number of homes that are coming on the market,” said Holt Homes Group CEO Jen Davis.

An analysis of the U.S. housing market in April by mortgage-finance company Freddie Mac estimated the country is 3.8 million single-family homes short of meeting demand. Limited housing inventory coupled with low mortgage rates means houses on the market are selling fast.

Angie Mullings, broker and owner of Century 21 Integrity Group, used one word to summarize the market: “frantic.”

Catch-22
Both Davis and Mullings say this is the strongest seller’s market they have seen in their combined 40 years of experience, despite low interest rates falling in the favor of buyers.

On May 10, the interest rate on a conventional 15-year loan was 2.25%, and a 30-year loan was 2.87%, Davis said. The interest rate on a loan from the Federal Housing Administration was 2.5%, which Davis described as “crazy low.”

The rates may be keeping homes more affordable, but there simply isn’t enough inventory to cover the increased number of buyers they are bringing to the market.

Davis, whose team works with Keller Williams Realty, said although the inventory levels were low in early 2020, the COVID-19 pandemic has made an impact on sellers’ willingness to put their homes on the market.

Hesitance from sellers, especially earlier in the pandemic during stay-at-home orders and rising case counts, likely came from a reluctance to have open houses or tours where strangers would be entering their home frequently, Mullings said.

But sellers also are most often buyers, looking for a larger home or moving to a new area, and they aren’t immune to the market.

The lack of homes available may be preventing more homes from being listed, like a real estate Catch-22, Mullings said.

“Yes, they can probably get more than they ever could for their home – their home has never been worth more than it is today,” Mullings said. “However, because of the low market, there’s nothing out there for them to buy so they’re staying in place more, doing remodel work, because they can’t find anything out there to buy.”

Davis and Mullings said the current market is likely hitting first-time homebuyers the hardest – because they’re typically coming into the process with loans rather than equity from a previous home sale.

While sellers still have to price their homes competitively and fairly, homes ofter are selling for higher prices, with multiple offers and sellers setting the terms of their choice, Davis said.

The average residential sale price for homes in Missouri in March 2021 was $244,940, up nearly 20% from March 2020, according to the most recent Missouri Realtors data available.

The price range most first-time buyers can afford also is one of the most competitive, Davis said.

While the average home cost for a first-time buyer was around $150,000 a couple of years ago, Mullings said the number is climbing closer to $180,000. The market is putting first-time buyers at a disadvantage and pushing most buyers to make full price offers right out of the gate.

“It’s competitive. They have to be really prepared when they start looking at homes to put their best foot forward,” Davis said.

Quick draw
When homes are available, buyers and Realtors must be quicker than ever to get in and make an offer or risk losing their chance.

“It is truly a mad dash to try and get our clients into the home, to book a time to see it, and to get that offer in and make it as appealing as possible,” Mullings said.

In the past, buyers may have viewed a house more than once, Mullings said, especially first-timers seeking advice of a parent or other experienced homeowner.

Not now. Buyers have to be fast, willing to make quick financial decisions.

Missouri homes sold after an average of 44 days on the market in March 2021 – 23 days faster than the same month a year prior, according to Missouri Realtors data. Homes are often selling after even less time on the market now, especially when they’re priced for first-time buyers.

Davis said an agent in her office listed a home for $140,000 at noon on a Friday. Within two days, there were almost 90 showings and 45 offers.

The market’s status requires an adjustment for buyers and Realtors alike. 

“You’ve got to be constantly watching what’s going on in the market, what’s coming on the market, and be ready to go,” Mullings said. “You have to have your buyers in that home in the first 24 hours or you might not even have a shot at getting that house.”

Davis said the speed Realtors often are having to operate may require some adjustments to their process. Agents typically use multiple listing service, a centralized online source for inventory. Now, an MLS might not be fast enough.

“What we’re finding is things are selling so quickly, or there aren’t enough homes for our buyers to choose from, that we’re actually having to reach out to neighborhoods our buyers want to live in and see what we can find for them that’s not on the market,” Davis said. “We’re having to look at it and say the MLS, our normal source of business, can no longer be our only source. We’ve got to be proactive versus reactive. I can’t wait for something to hit the market for our buyers. I’ve got to go actively look for new sellers every single day.”

The result is a frantic pace for buyers and agents, and for those without the support of a larger team of Realtors, it can be a challenge, Davis said.

“For the individual agent, it can be more challenging because buyers right now are afraid to wait a day to look at a house because it may not be there,” Davis said. “We’re almost at this spot where an agent is concerned if they say no, that their buyer will miss out on an opportunity.

“It’s this weird space to be in where it’s almost like we have this on-demand service. There’s this heightened sense of urgency.”

Davis and Mullings agree the market is not likely to shift for the rest of 2021. Mullings said she anticipates the market staying where it is for at least another 18 months or up to two years.

New home construction and foreclosures resuming – which had been partially stalled throughout the pandemic – could help to increase inventory, Mullings said.

“If some of those factors change throughout this year, it will level the playing field a little bit,” she said. “I can’t see us being in a buyer’s market by the end of this year, but it will start to loosen that inventory a little bit.”