A seller’s market is when there is less than six months of inventory on the market. In the Madison area we have been facing a severe shortage of inventory for the last seven (!) years. What are the reasons for these market conditions and why are they persisting?

Perhaps more importantly, what can a good real estate agent do to increase your chances of landing a great property in a multiple bidding situation.

The first reason we’re in a seller’s market is obvious: there is precious little inventory for sale. The question on everybody’s mind however, is why?

Why is there so little inventory?

What are the forces that have caused inventory to dry up to levels not seen in more than a decade? Why is it becoming more and more difficult for buyers snag a home? Has the market changed forever or is there light at the end of the tunnel? If so, when?

7 Reasons that Favor Sellers

1.) Distressed property (short sales & foreclosures) is not a good source of inventory for the average buyer. The average homebuyer is unable to compete with cash buyers, flippers and investors when it comes to properties requiring a major cash infusion. With this segment of the market more or less cornered, that leaves average homebuyers competing for the same non-distressed inventory when searching for homes.

2.) Banks aren't sitting on as much "shadow inventory" as they once were. Shadow inventory is the supply of homes that banks intend to foreclose on (or are deliberating keeping off the market to constrain supply and increase demand). Over the years this source of inventory has dried up for the most part as the recovery from the 2008 mortgage meltdown is increasingly in the rear view mirror.

3.) You may have heard that new construction is way up, however it's up from historic lows so inventory is still pretty constrained. In addition, the cost of building a new home has risen, and builder have raised home prices to compensate. First-time homebuyers, and others on tight budgets are less likely to be able to afford a new construction home. That causes more competition in the secondary market, especially among first-time homebuyers, thus driving up prices and lowering affordability.

4.) A lot of the new construction we’re seeing is high-end or luxury apartments—thus causing rents to increase and pushing renters into the real estate market in an attempt to control their housing costs. Even if those renters wind up not buying, the extra foot traffic causes real--or perceived--buyer demand to increase and, in turn, can cause prices to rise.

5.) During the Great Recession many people lost their jobs which prompted them to move in with family members to lower their living expenses. As people moved into new jobs rather than moving out, they used the savings to fix up those homes. Some owners now find they like their homes better and don't necessarily want to move or can't afford to move up the property ladder. 

6.) And then there's this: since there’s no inventory, if I sell now what can I expect to buy? Is there anything out there that will appeal to me and if so, will I be able to purchase it? This causes inertia in the marketplace, resulting in fewer homes going on the secondary market.

7.) If you are among the 30% of Wisconsin residents who itemize their property taxes for federal tax purposes, and you plan on buying an expensive home, you may be concerned that you can only deduct property taxes up to $10,000. Keep in mind, however, that the average property tax in Wisconsin is $3,196 and that the highest average for Madison is $4,871. You would need to buy a VERY expensive home to hit the cap.

8) And, finally, this: What if interest rates rise before I can buy? I could be trading out of a low-interest rate loan into a higher interest rate loan. 

Cash is Still King

Most of the best homes on the market continue to generate intense interest and multiple offers. In some cases homes are selling for prices that are over what banks will appraise these properties for. If you, as a buyer, need to obtain a mortgage to buy, and you don’t want to be on the hook for the shortfall if it doesn't appraise, you will need an appraisal contingency.

But if you are in competition with someone who can pay cash at closing or bring cash to the closing table to meet a shortfall in the appraisal, then it will be difficult to compete with someone who is in a position to write an offer without an appraisal contingency. If you are in competition with a buyer like that, you may be on the receiving end of a rejected offer.

If you find yourself in this situation you will need a very dedicated Realtor to act as your buyer's agent so that you can increase your chances of landing a great home. If you work exclusively with a Realtor from Lake & City Homes Realty, you can be introduced to additional sources of inventory such as "Coming Soon Listings", "Withdrawn/Delayed Listings" (listings only visible to licensed Realtors who are members of the South Central MLS), as well as "Single Party Listings" where we will attempt to locate a home for you that is not on the market but which matches your search criteria. We have a few other optional creative tricks up our sleeve (all totally legal, of course) that can greatly increase your chances of landing an accepted offer on a highly sought-after listing. 

The bottom line is that with inventory so low and so many buyers on the receiving end of a rejected offer, now is still a great time to sell. In fact, the timing couldn't be better, and here's why:

"Moody’s Analytics estimates that housing prices will drop about 4 percent nationwide," as a result of the new tax law. Selling now ensures that you'll make the most amount of money possible on your home, according to Jeff Andrews at curbed.com.

Lake & City Homes offers many strategies for ensuring that you're able to land a suitable replacement property. Typically we see buying surges in spring as the Madison real estate market heats up, and again in the fall as families with school-aged children endeavor to put a house under contract so they can register their kids for school.

Buyers are also learning that they need to be nimble to land a great property, so many buyers are renting on a month-to-month basis so they can quickly jump on the right buying opportunity regardless of the time of year.

If you're thinking of selling a home in Madison, get a free online estimate of your home's value or, if you're looking to list your home, contact the Broker/Owner of Lake & City Homes Realty, Jolenta Averill, to schedule an appointment to receive a personalized market analysis of your home's value.



Posted by Jolenta Averill on
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