March “Real Estate” Madness
Looking back at the month of March makes me realize how happy I am that April arrives with some of the best weather and spring on full display. March Madness is an accurate description of the real estate market this year. Especially if you are an active homebuyer searching for that perfect home to buy.
2021 Is Heading Toward New Records Despite Covid-19 AND Because of It
The first three months of a new year are typically filled with hope and optimism as a new year equates to a new start. Home buyers in 2021 were out the door in early January ready to find that perfect new home only to discover that there was a noticeable shortage of homes for sale.
As of the end of March the number of homes for sale continues to drop below previous record lows. The total number of homes on the market at any given time is half of what it was just a year ago. When you start to split out the market by categories, the hardest hit segment is Single Family Resale inventory. During the month of March alone the average for sale count in the Des Moines MLS was around 550 homes. The same time last year we had over 1,800 homes to choose from in that category which translates to 70% fewer homes for buyers to buy.
With so few homes in the most popular segment of the market, one would think that the number of homes going under contract would also be low. Near the end of March however, the number of Single Family Resale homes in sale pending was at the 1,800 level, up 9% over a year ago.
Let that soak in a minute. Over 3 times the number of homes for sale are in the sale pending process. How is that even possible?
The Des Moines Real Estate Market Is At The Flash Point
Virtually every listing that is added to the for-sale market is selling, many with multiple offers and frequently above the listed price. The Days on Market is on a downhill slide as Closed Sales in March alone show Single Family Resale home spending less than 7 days from list to acceptance.
More Extended Showing Periods and Escalation Clauses
This number would be even lower if it wasn’t for an increasing practice of listing agents beginning to list homes with notice that the new property for sale will be allowing showings for 2–3 days before reviewing and responding to any offers. This sometimes debatable approach does give hungry home buyers a more equitable chance of getting inside the home and time to make a rational offer on it—albeit along with other buyers making competing offers.
When these multiple offers do come in, it’s becoming more likely that home buyers are willing to show their hand in the offer process by utilizing an escalation clause as part of their offer. How that basically works is a home buyer makes an offer to purchase at a specific price and includes verbiage similar to this; “In the case of multiple offers, the buyer will pay $500 over the next highest offer, net proceeds, not to exceed $200,000” (Dollar amounts mentioned are for example only).
In this example let’s say the home was listed for $190,000. This buyer may write their offer at $190,000 along with the escalation clause stating that they will beat any other competing offer by $500, not to exceed paying more than $200,000. If a competing offer was $195,000 and all other terms in the offer were equal, the buyer with the escalation clause would win out and pay $195,500—even though they showed that they would be willing to pay up to $200,000.
Other ways of Sweetening the Offer
Besides enticing a home seller with higher offer prices, it is also becoming fairly common for a homebuyer to offer a closing date window (or even let the seller choose the closing date), therefore giving a seller the time cushion to find their next home—a frequent reason that sellers are giving for not listing in this extremely active market.
Additionally, some homebuyers are willing to look past some home inspection items discovered during an inspection period and focus on the most major items such as structural and safety. In some cases (not recommended) some homebuyers are rolling the dice and foregoing a home inspection all together.
What About the Rest of the Real Estate Market? New Construction? Condo/Townhome?
I’ve said this before, but it bears repeating—if we didn’t have new construction inventory as an option to buyers, our market would be close to grinding to a halt.
While the number of Single Family Resale homes for sale are down by 70% over last year, home builders have been able to adjust their for-sale inventory levels and pricing to bridge the gap of those buyers that would normally move up to a pre-owned home.
Even with supply shortages and rising costs, Single Family New home listings are only down around 16% from last year. As of the end of March there were around 750 New Construction or Proposed Construction homes for sale with a Median List Price of $326,000.
Next Month—The Bottle Neck of Pending Sales
The challenge to homebuyers that do get their offers accepted is waiting for home inspectors, appraisers, mortgage underwriters, title companies—even moving companies to handle the over 35% INCREASE in sales over last year.