How First-Time Homebuyers Are Navigating Competitive Markets
A recent feature published by New York Times outlined the challenges many first-time buyers are facing in real estate markets around the nation, as starter home supply dwindles and prices increase. In areas beyond the Puget Sound, homes are selling quickly, especially when they are smaller and lower-priced, and “seasonal demand is increasing as usual, but buyers are finding that there is a lack of new listings.”
Looking at U.S. trends, many new construction projects are coming on at higher price points while Danny Garder, senior vice president of affordable lending and access to credit at Freddie Mac, tells the Times that many investors “are turning to single-family homes as rental properties to diversify their holdings, creating more competition for traditional buyers when houses come on the market.”
When they dip their toes into the market and start looking for a home to purchase, first-time buyers are forced to reckon with competitive bidding wars and down payments that continue to rise. Many are abandoning the traditional 20 percent down payment: “more than half of first-time buyers made down payments of 6 percent or less in the 12 months ending November 2017, according to survey data from the Realtors association.”
Though conditions may seem daunting to those looking in Seattle, they are not impossible. As Seattle Times recently shared, success may be found by using a few tips outlined within their “survival guide.” As Mike Rosenberg writes, “the average buyer will tour dozens of houses, lose to higher bids about three to five times, and pursue a house for six months to a year before finally getting a home.” The experience was so lengthy and time consuming that many “likened the process to a full-time job.”
So, what can buyers do to prepare themselves as they enter Seattle’s hot market? Here are a few key tips outlined by Rosenberg:
1. Save, Save, Save
Though there are loan programs that allow for a down payment as low as 3 percent, “the market today is so competitive that sellers are looking for buyers to put down as much as possible.” The average down payment of a homebuyer in King County (using a traditional mortgage to make the purchase) is now 18 percent, a six-figure number given current median home prices.
2. Get Pre-Underwritten
Attom reports that nearly a quarter of homes in our region are purchased in all cash, and these “offers are much more attractive to sellers and almost always win if they are near the highest overall bid.” Though preapproval is an important step to establish your budget and credibility, many buyers are now getting pre-underwritten when they start shopping, “having their credit score checked, bank statements verified and assets combed over,” which brings them as close to all-cash as possible.
3. Choose a Lender…
Seattle Times says that many buyers who elected to work with larger banks regretted it because there can be extra steps that take more time, and they may not have the same connections to the real estate community (and understanding of market trends) that a local lender has.
4. …And a Broker
In the same way that you will tour a number of homes before making a decision, it is vital to interview at least a few brokers before deciding who to work with. It’s important to “see how you’ll get along and test out how well they know the market.”
Given that about two-thirds of homes in our region are selling above asking price, it is recommended that you search for a home a level below your budget limit: “so if you’re only willing to spend $600,000, you should be looking at houses that are listed at $550,000 or below.”
6. Move Like the Wind
Once you find a home you want to submit an offer on, it is critical to move quickly, as you may only have only about “a week to decide on the biggest purchase of your life” and arrange for pre-inspections, title reports, etc.
7. Let the Bidding Begin
The bidding process can be tricky to navigate and this is where having a real estate agent on your side can make all the difference in the world. There are many techniques we can leverage, such as non-refundable earnest money deposits, waiving inspections and title, sending a personalized letter, and more, which will make our offer more attractive and ultimately get you into the home you’ve been dreaming of.
For more on how to survive buying in Seattle, read the full “Survival Guide” here or contact me today so we can discuss making your next move.