2020 is behind us. And we are all glad to see it go. Yet the real estate market of 2020 set new records as buyers decided to seek more space, or move to a better area for their needs.
This strong demand for homes in our area far exceeded the availability of existing and new inventory, and set new price expectations for homes coming on the market. So, in light of all this, what can buyers and sellers expect to see in 2021?
1. Tight inventory, continued high demand and multiple offers
A seller’s market is likely to continue for the foreseeable future, particularly in suburban areas that offer more space, a lifestyle with an abundance of outdoor amenities, and an environment favorable to fitness and wellness. People are still on the move, and many who were able to continue working remotely already decided to hop in the game in the latter part of the year.
When it comes to being approved for financing, buyers should be fully prepared to move fast. Evidence of sufficient foods to close, together with a firm pre-approval letter should be in place, ready to provide with their offer. They have to be ready to jump on something that meets their criteria the moment it becomes available.
Buyers also need to know that being picky will cost them more money in the long run as they watch the prices go up. That property they initially passed on? It’s probably starting to look like a real bargain now.
Multiple offers are going to be the new normal. Buyers need to understand how much they should realistically be prepared to go over asking price. They may need to adjust their price range downward to afford themselves the flexibility of going over a property’s asking price with confidence instead of stretching to the top of a budget they’re already struggling to afford.
2. The market won’t pay top dollar for overpriced or dated homes
This has been said and written about before, but it bears repeating again. Look at all the properties that are on the market. If they’ve been sitting there for more than a few weeks in our area, something is likely wrong with them. It could be the price, condition or perhaps a functionally obsolete layout. Rather than dealing with the hassle of finding, hiring and waiting on contractors to show up, buyers will often pay a premium for homes that are new, fixed-up and move-in ready. This is especially true of buyers who are relocating from outside the area or those who are looking for a second-home property that will eventually become a primary residence.
Homes that need updating will always sell at the right price though. There are always buyers that prefer to make their own updates and improvements rather than paying for somebody else’s tastes.
3. Leaseback and post-occupancy after closing
Buyers who are able to offer sellers the ability to stay in their properties after closing for a specified period of time will often have an advantage over buyers who are trying to time their closing with their move-in date.
Many sellers want the certainty of selling their property and money in the bank, but they also want the ability to stay in their home until they are able to move into their next one. Some sellers might be building a home that won’t be ready for a few months. Others might be doing the same as a courtesy for the sellers of the new home they’re buying.
In some markets, it’s common to see listings offered contingent on the ability of the seller to find a replacement property. Buyers who have the most flexibility with being able to accommodate these kinds of circumstances will stand to be the most successful in buying a home.
Following the significant acceleration in home prices in 2020, we are now seeing signs of appraisals coming in below agreed sales price, particularly where properties are going well over the list price. With this in mind, both buyers and sellers should be prepared for some potential bumps in the road. And while an appraisal contingency should protect a buyer from overpaying, many buyers are waiving appraisal contingencies (and even inspection contingencies) as it seems like its the only way to stand a chance of getting an offer accepted in this competitive market.
Although the East Bay appears to offer homes for sale at very reasonable prices compared to San Francisco or Silicon Valley, it is now getting so expensive that soon it may no longer have the same appeal as it has at present. Affordability will undoubtedly be the defining factor, and this will undoubtedly become an issue sometime soon. House prices have been increasing far faster than earnings, and if buyers don’t earn enough to qualify for the loan they need, their options are limited. Some will have to accept that they need to lower their expectations, but others will just stay put. Savvy home owners planning a move may be best advised to sell sooner, rather than later. Waiting for the top of the market to sell a home has always been a very risky endeavor.
Markets are always changing year to year and even within the year. While January 2021 appears to be off to a brisk start with homes selling just as fast as they are hitting the market, changes can come quickly. And as more people receive the COVID-19 vaccine, people may start to turn their focus to travel, and planning celebrations they weren’t able to host before, rather than buying a new home.
No matter what may happen though, everyone needs to live somewhere — and there will always be people seeking a home to buy in 2021. While they may not be seeking an escape from their current geographic location, they’ll likely be looking for opportunities to put down some roots, build equity and appreciation or simply retool their lifestyle. At a certain point, the pandemic relocation phase will pass, and life will return to a sense of normalcy.