If you're hoping to buy a home in the Harrisonburg area it can seem challenging to buy a home right now. 

After all, you might decide you want to buy a home in the Keister Elementary School district and then be dismayed to find that there are only two houses for sale right now under $500K in that area. 

Well! 

So, as you look ahead towards the next few months should you just expect to see one or two more houses become available in the Keister Elementary School district?

I'm going to say a resounding, no!

Over the past year there have been (60) single family home sales in the Keister Elementary School district under $500K!

That's about five houses per months... so over the next three months there may be (15) houses from which to choose... or maybe even more since a greater number of homes are listed for sale in the spring and summer than in the fall and winter.

Anyhow, if you're looking to buy right now, it will be challenging, and you'll have lots of competition... but the houses you see on the market today are not the only ones you'll be able to buy over the next few months.

You'll need patience in waiting and then speed in pursuing!  

On many, many, recent offers on properties I have listed for sale buyers have not been including home inspection contingencies.  This seems, in many circumstances, to be the only way to (hopefully) make your offer competitive enough to (hopefully) win out when there are multiple other offers in this frenzied seller's market.

In a more balanced market, there are two general outcomes of a buyer having hired a home inspector to conduct a home inspection...

[1]  First, a buyer affirms their decision to buy based on new information gleaned during a home inspection that they did not know when viewing the house prior to making an offer.  If the new information causes them to see the house in a significantly different light, they may very well ask the seller to make some repairs, reduce the price or they might decide not to proceed with the purchase.

[2]  Second, a buyer typically learns a lot more about the house than they knew before the home inspection.  Even if the new information that they learn does not cause them to decide not to buy and does not cause them to try to renegotiate contract terms with the seller, it still helps them to understand what types of future home improvement or preventative maintenance they should anticipate in coming months and years.

Given this second factor, particularly, my strong recommendation to home buyers in this current, frenzied market, is to hire a home inspector to inspect your home after you close on the purchase.

You are likely to gain additional information and insight into the condition and systems of your home that will serve you well throughout your ownership of the property for years to come!

Have you heard?  Interest rates are on the rise.

In early January, the average mortgage interest rate was 3.22% on a 30 year fixed rate mortgage.

Last week, the average mortgage interest rate was 4.67% on a 30 year fixed rate mortgage.

That is quite an increase!!!

Here are two examples of how that might -- and might not -- affect buyers.

Our first set of fictional buyers was planning in January to buy a $450,000 home in Rockingham County while putting 20% down as a downpayment.

Here's how things were looking in January with a 3.22% mortgage interest rate...

Here's how things are looking now with a 4.67% mortgage interest rate...

As you can see, these buyers will have to pay $300 more each month because of the increased mortgage interest rates -- but, they were originally qualified up to $600,000 so the $300/month increase is annoying and frustrating, but does not change their plans to buy a $450,000 home.

• Purchase Price = $350,000
• Down Payment = $35,000
• Loan Amount = $315,000
• Monthly Payment = $1,702

So, in theory, these buyers would have to pay $263 more each month because of the increased mortgage interest rates -- but, they are only qualified for a mortgage payment of up to $1,725.  Eek!  They are no longer qualified to buy a $350,000 home.

As such, here's how things really look for them if they are maxing out their $1,725 per month budget given these new mortgage interest rates...

As you can see, these buyers had to reduce their budget from looking at houses priced at $350,000 down to houses priced at $305,000.  That's quite an adjustment, especially when home prices are currently increasing by 10% per year.

All this is to say that some buyers will *definitely* be affected by these rising interest rates -- finding themselves no longer able to buy the home they hoped to buy, or needing to lower the price point of houses they will be considering.  At the same time, however, some buyers will still be able to afford to buy the same houses they had planned to buy -- though their monthly housing costs for having done so will certainly be increasing.

If, in our local market, most buyers were maxing out their home buying budget, and thus now have to buy less expensive homes, that could cause values to stop increasing, or even to start decreasing.  What is not clear is how many buyers in our local market were maxing out their home buying budget and how many had room to increase their monthly mortgage payment if needed.

 

This might sound a bit counterintuitive to suggest in the current market, but I believe an escalation clause can (amidst other appropriate offer terms) be an effective way to make sure you are not paying more than you need to pay for a house.

Here’s the scenario…

A lovely house comes on the market… it is **exactly** what you have been looking for… and you manage to snag a showing slot on the first day the house is available for showings.  We discover that there are a **lot** of showings on the first two days of showing and we’re already feeling anxious before we get to the house for our showing.  We haven’t been inside for more than a few minutes before you realize this is **definitely** the house that you would do anything to be able to purchase.  

The house is listed for $400,000.  You would happily pay $400,000 for the house… or even $405,000 or $410,000… maybe even $420,000 or $425,000.  It is, indeed, that perfect.

It isn’t until day two that you have an updated lender letter showing you are pre-approved up to $425,000 and you are relieved to find out that the house is still available.  

We start talking through potential offer terms and then find out that after 48 hours there aren’t any offers on the house.  We get the sense that there have been about 20 showings and about 10 of those buyers still haven’t decided whether to make an offer… but at the moment, there aren’t any offers.

What to do, what to do.  

Do we offer $400,000 and ask to be notified if there are other offers… with the plan of revising the offer if we find out that we are in competition with other buyers tomorrow?  This is a reasonable plan, but some seller won’t slow down and wait for your revised offer if they get a stronger, acceptable offer after they receive your offer.

Do we just offer $415,000 or $420,000 to try to proactively put our offer above any other offers that might come in?  This is also a reasonable plan, but you might then be paying $15,000 or $20,000 more than you need to pay if no other offers are made.

One strategy for this situation (among many, for sure) is to make an offer at or just above the asking price with an escalation clause to automatically keep your offer a set increment above any other competing offers that come in later.  This might be an offer of $402,500 with an escalation clause to automatically make your offer $5,000 higher than any other offer up to $425,000.  

Doing so (as described above) would give you the advantage of only paying $402,500 if no other offers came in, or if the other offers were right at the list price of $400,000 -- while also allowing your offer to be automatically be higher than any other offer unless they offered $425,000 or higher.

So… if you are making an offer… and there aren’t any offers in play yet… consider an offering price at or just above the list price… with an escalation clause to hopefully keep you in first position if or when other competing offers do start rolling in.

You will be giving yourself the best chance of actually buying the house, while also doing a decent job of making sure you don’t pay any more than you need to pay based on competing demand.
 

If you want to buy a home, great news... there have been 100 homes listed for sale over the past ten days!

Oh, but wait.  :-)

Half of those homes were new homes or to-be-built homes, mostly in these neighborhoods...

This fits into the category of...

In this VERY competitive market, would-be buyers are going to great lengths to try to be the winning buyer selected by a home seller.  In many larger markets (think cities larger than Harrisonburg) where the housing market is even more competitive than it is here, many buyers are offering sellers the option of staying in the home they are selling after settlement - often for a few weeks or a few months.  Wow!

But... sometimes it's happening here in Harrisonburg and Rockingham County as well!  I have now been a part of three transactions thus far in 2022 where this was the case -- where the buyer let the seller stay in the house after closing -- and I don't think those will be the last three this year.

So how does it work?

[1]  Sometimes a seller will ask to be able to stay in the house after closing when they put their house on the market.  This will often work for many but not all buyers.

[2]  Sometimes a seller won't ask to stay, but a buyer will offer it.

[3]  Sometimes a seller ends up staying for a few days or weeks... and sometimes several months.  Every situation will be different as to what a seller desires and what works for a buyer.

[4]  In this market, currently, it seems that sellers are typically paying (rent) for the right to stay in the house after closing.  In some other markets, buyers are offering sellers the right to stay without paying for that post-settlement occupancy.

So... if you're buying (or hoping to) in 2022, perhaps we should chat about whether you would be able to work with a closing and moving timeline where the seller stayed in the home for some period of time after settlement.

If you're selling a home in 2022, we shouldn't assume that many or all buyers will be willing to let you stay in the house after settlement, but there is a decent chance that it will work for some or many buyers, especially given the highly competitive current housing market.

 

Some  properties that hit the market these days -- particularly townhouses -- appeal to two different pools of buyers...

Owner Occupants - often first time buyers, hoping to buy the townhouse to move in, put down roots, establish some equity, and more.

Investor Buyers - hoping to buy the townhouse to then rent it out to tenants to provide a return on their investment.

Sometimes, owner occupants and investor buyers are on relatively equal footing when it comes to negotiations.  They might offer similar prices... they might both be financing a part of the purchase price... they might both have inspection or appraisal contingencies, or they might not have either of those contingencies.

But sometimes...

...sometimes aggressive, motivated investors with cash, make it *very* difficult for an owner occupant buyer to have a chance at all.

Even if an owner occupant's offer price is identical to this aggressive investor' offer price... an investor who is paying cash removes the loan approval as a variable... and more importantly (especially in this market) they remove the appraisal as a variable.

Let's say that townhouses in this particular neighborhood have been selling for $200K... but both the owner occupant buyer and cash investor buyer are willing to pay $225K.

That $225K offer (times two) is great news for the seller... but... the owner occupant buyer who is financing their purchase will likely need the property to appraise for $225K (in many cases) and thus the investor buyer, paying cash, which will not require an appraisal, becomes a MUCH more compelling offer.

And who can blame the seller of the townhouse... even if they would much rather sell their townhouse to an owner occupant buyer, it's hard for such a townhouse seller to choose a path that is objectively much more likely to have issues related to the appraisal.

So... if you are a would-be owner occupant buyer making an offer on a townhouse... you better just hope you aren't competing against an aggressive, motivated investor buyer with cash!

 

This is not news to most of you -- but homes are selling QUICKLY these days.  It's no longer sufficient to try to see a new listing in the first week that it is on the market.  You should likely try to see it within the first one or two days that it is on the market. 

On one home I recently listed for sale there were 20 showings within the first two days -- and four offers within 24 hours of the first showing.

I have been working with buyers who wanted to view several other recent listings but they weren't able to see the homes on the first day or two that they were on the market -- and the houses were under contract by the time they were ready to go see the houses.

If you're planning to buy this spring or summer you will likely need to be ready to act very quickly.  Plan to go see new listings on the day they are listed -- or the first day thereafter.  Be prepared with a bank letter showing you have the ability to make whatever offer you might decide to make on the new listing.  Finally, you may not have the luxury of sleeping on the decision and waiting until morning to determine if you will make an offer.

It seems this will be another fast paced spring housing market in Harrisonburg and Rockingham County!

 

Sometimes a home buyers doesn't have all the cash on hand that they need for both a down payment and the closing costs. 

In that situation, sometimes a buyer might propose a higher sales price with the seller providing a closing cost credit at settlement.

For example... instead of the buyer paying $240K for the house, they could pay $245K and the seller would give them a $5K credit back at closing.

But... these days... that isn't happening as often.

Three years ago sellers were giving closing cost credits to buyers in nearly half (46%) of all home sales in Harrisonburg and Rockingham County.

These days, it is only happening about one in four times.

Why might these types of transactions (with closing cost credits) not be happening as frequently right now?

First, many or most sellers seem to gravitate towards buyers who have the strongest financial position (largest downpayment) as that is often an indication that they will be more likely to make it successfully through the contract contingencies (inspection, financing, appraisal) to settlement.

Second, artificially increasing a contract price in order to have part of your closing costs included in that contract price will most often raise the bar as far as the the price for which the house will need to appraise.  If presented with a $240K offer and a $245K less $5K offer, nearly all sellers will choose the $240K offer so that the house only has to appraise for $240K and not $245K.

So... if you need a closing cost credit when buying a home... that's fine, it's still happening sometimes... but not nearly as frequently as it was in the recent past.

 

I think not.  I think it will be a long wait.

But sure, I am willing to be wrong.  ;-)

Home prices have been rising quickly, of late...

An age-old question is whether to buy a re-sale home or build a new home, especially as your price range gets above $500K or $600K.If you are stuck in this quagmire, I'd be happy to meet with you to talk through some of the pros and cons and try to help you come to a decision you'll be pleased with in the short and long term. 

If you are making an offer on a house in 2022 there is a decent chance there will be other offers on the property as well.  As such, you may find yourself considering the use of an escalation clause.

How often are home buyers paying cash for their homes in this area?

It seems between 10% and 15% of home buyers are doing so each year according to data from the HRAR MLS.

When a home sale is reported to the MLS, one of the required details is whether the purchase was made with cash or with financing.

As shown above, 2021 feel right in the middle of the pack as far as the portion of home buyers who paid cash for their homes.

So, what do you say, will you pay cash for your next home purchase? 😉

 

First, some raw data...

Resale Home Sales:

About a year ago, on February 11, 2021, the average 30 year fixed mortgage interest rate was 2.73%.

A few days ago, on February 10, 2022, the average rate was 3.69%.

So, yes, rates are rising, which means mortgage payments are rising for anyone who is not paying cash.  In other words, for most home buyers.

For example, if you were financing 90% of your $300K purchase...

But if you were buying a $300K home a year ago, given roughly the 10% increase in the median sales price over the past year it would be a $330K home today.  So it's really more like...

The cost of housing is certainly increasing rather quickly right now given increasing prices and increasing mortgage interest rates!

 

Sometimes, you have to be willing to pay the price to get the house...

Over the past year-ish (Feb 7, 2021 - Feb 6, 2022) there have been 1,660 home sales in Harrisonburg and Rockingham County.

As noted earlier this week, 73% of buyers paid full price or more for their home -- which is 1,229 of those 1,660 home sales.

But going a bit further... 200 buyers paid more than 5% over the asking price for the home they purchased in the past year.

Looking just at those 200 transactions where buyers paid more than 5% over the asking price... on average, buyers paid $25,561 over the list price!

How does that number strike you?  It was much higher than I thought it would be...

 

I guess the guy in the photo above is holding out $40,000 of cash -- slightly higher than the average of $25,561 noted above -- sorry for my illustrative exaggeration.  ;-)

  

OK, OK, don't get too excited -- I'm not suggesting you actually MAKE a fake offer on a house... just WRITE the offer.  ;-)

...and here's why...

As we roll into March and April we will likely start to see quite a few houses start to hit the market for sale - and you might, finally, find the house of your dreams!

When that dream house does come on the market, we'll need to go see it the first day (or second day) that it is on the market - and then you will likely need to make an offer within 12 to 24 hours.

So, it's all going to happen rather quickly!

When we get to that point, you will have to make a bunch of decisions, quickly...

[1]  Offering Price?

[2]  Escalation Clause?

[3]  Inspection Contingency?

[4]  Radon Test Contingency?

[5]  Appraisal Contingency?

[6]  Closing Timeline?

[7]  Deposit Amount?

...and more!

Now, certainly, the answer to some of these questions will vary based on the property you are pursuing... but it can still be very helpful to talk through these decision points when we are not in the middle of a mad dash of putting an offer together to meet a seller's deadline for submitting an offer.

 

So, if you plan to buy (or hope to buy) this spring, we might consider writing a fake offer to buy a house -- so that we can talk through the different decision points that will exist when we make a real offer on a real house!

 

Are you trying to buy a house?

Are you discouraged by seeing very few options on the market for sale right now?

Here are some action items...

[1]  Be encouraged to know that in 2021, despite inventory levels staying very low all year, more buyers bought than anytime in the past 15 years.  So, over the course of weeks and months -- plenty of new listings came on the market, allowing all of those buyers to buy -- despite very few homes being on the market at any given time.  So, as we move through 2022, you are likely to see plenty of options coming on the market in the coming weeks and months.

[2]  Talk to a lender, ASAP if you haven't already.  When a new listing of interest does hit the market, you will likely need to see it within a day or two and make an offer shortly thereafter.  You'll need a lender prequalification letter to make a reasonably strong offer - so talk to a lender now to have that in hand when the right house does come on the market for sale.  If you'd like a recommendation for a few great local lenders, email me.

[3]  Make a plan for keeping track of new listings.  You need to know about new listings and know about them quickly.  There are plenty of options out there, including NewListingsInHarrisonburg.com (with an email alert option), Realtor.com, Zillow, and many others.  I can also set up a few saved searches on my end to be watching for the types of houses that would be of interest to you -- so feel free to email me with details of what you'd like to buy.

[4]  Go view new listings that are almost perfect.  As new listings hit the market, some will seem to be close to what you'd like to buy -- but not quite perfect.  Go see these houses anyhow.  You might be pleasantly surprised that what seemed to be an "almost" house is a "perfect enough" house when you see it in person.  If you see a house and conclude that it really is off the market, as you had anticipated, you will at least have further established a context for what you want to buy -- and how much you will likely need to pay for such a house.

[5]  It sort of goes without saying... but you'll likely be most successful in your home buying quest if you are working with a Realtor.  Whether that's me, or another agent, engage a Realtor for assistance with the home search and home buying process!

 

A somewhat shockingly high number of homes sold at or above asking price over the past year...

So, what does that mean for you if you are selling or buying in 2022?

SELLERS: If you want to sell for $400K, you likely don't need to list your home for $420K in order to leave yourself room to negotiate down on price.  Listing it for $400K will likely do the trick, and might result in the house selling for more than $400K.

BUYERS: Understand that you are likely to need to pay full price or higher for the house you plan to buy -- though that needs to be put in the context of the value of the home.  Certainly, if a $400K house is listed for sale for $475K then you shouldn't pay full price or higher...

 

Understanding the local real estate market is more important than ever for buyers and sellers in 2022!