Why is this real estate market so hot? With the dramatic price increases in real estate this last year, are we in a real estate bubble? Many people would answer that demand is driving this market, and half of the population of California and Washington are now moving to Arizona which is helping to create a housing shortage. It is true there has been a greater influx of people moving into Arizona from these states, but that is not the reason for the housing shortage.
The scarcity of homes for sale is largely attributed to 15 years of under-building. Another contributing factor is the volume of new listings coming to market are lower than 2020 levels, which were low to begin with. Home sale prices have been rising between 2-3% per month which equates to an annual equity gain of up to 30% in some areas. There is no doubt this is a seller’s market, yet some sellers that could benefit from the high equity gain can’t sell because, well, they would need to buy a home too.
Also, this is not the time to try and wholesale your home or not put it on the MLS, or you might be losing tens of thousands of dollars in above-asking-price offers. Just like small business is the backbone of a community, so are primary resident purchases. Primary buyers are having a tough time though.
With offers over list price and appraisal waivers, a buyer needs cash in this market not only for their down payment and closing costs, but for appraisal differences too. Rent prices are increasing and many renters are ready to buy or being forced out to buy but finding it difficult and are pressed for time. There are solutions to this problem but buyers really need to be educated, prepared and ready like never before to buy a home.
So how long can this crazy market last? Depending on who you talk to or what you read, you will get many different answers. The current market is in no way related to what happened in 2005. Our current lending practices are not the same and we are in a completely different scenario.
This market is really tied to basic economics, supply and demand. With low interest rates buyers have more buying power and if interest rates begin to climb some buyers will not be able to buy. Less buyers equals less need for homes, less need for homes equals more inventory, more inventory equals price reduction. This may take some time to happen but the key here is to watch interest rates.
For sellers, the market may increase in value still, but we can safely say we are at a high in value right now even if there is still slightly more increase to come. For buyers, it is safe to say that you’re buying power is also at an all time high. I would focus more on your present needs as both a buyer and seller and act accordingly. The market will shift and change but there is no time like the present.