One decision changed everything.
On March 15, 2020, the Federal Reserve slashed their interest rates from 1.55 percent to between 0 and 0.25 percent. The Fed intended for this to curb inflation and keep people spending to stimulate the economy. It worked.
But with rates this close to zero, many people took a look at their finances during the shutdown and either decided it was the best time to purchase their first home or to refinance their current mortgage rate. One year later, there is a housing crisis.
“Never seen a market like this in 25 years,” said Marsha Marsh of Marsha Marsh Real Estate Services. Standing beside her was one of her associates, Nanci Lorei, who has been in the business for over 40 years. She hasn’t seen anything like this either.
A housing shortage plagues the nation. How bad is it? Marsh and Megan DeMarco of RE/MAX Real Estate both talked about the Multiple Listing Service (MLS), a website that posts available homes, condos and foreclosures. At the time of Marsh’s interview on Tuesday, April 27th, there were 235 active residential listings in Erie County and over 600 real estate agents. By Wednesday afternoon, April 28th, DeMarco went to confirm that number and found there are only 188 listings left.
Meanwhile, the number of people who want to buy a house using the low interest rates continues to grow, and a competitive bidding war gets more crowded.
“The hardest part for new buyers is they don’t have time to think and ponder because this is a huge investment,” said Jennifer Purpura, an agent for Coldwell Banker Select and president of the Greater Erie Board of Realtors. “New buyers usually would need help with some closing cost money, which [those funds] are not available now because they’re competing with people [for houses] who don’t need it.”
Each battle for a new house ends quickly. DeMarco recapped one of her latest sales. The house went public last Thursday and went pending Monday.
“We received 26 showings,” DeMarco said, “and I had 15 groups of people at the open house [on Sunday]. We received seven or eight offers.”
In fact, Purpura added if you want to sell your house, a realtor can get you offers in as little as two days. Marsh and DeMarco confirmed, but Marsh has a warning for both buyers and sellers.
Selling a home is no problem right now. However, a home shortage means the seller needs to have a place to go first, whether it is their parents’ home, a new home of their of their own, or a rental, which is also tough to find, locally. If the seller has a place to go, they now have to be ready to move out in days, not weeks.
Buyers face the majority of the risk because of the competition.
“People come in, they price their property around $395,000, which is reasonable,” Marsh said. “Next thing you know, the offers come in [at] $400,000; $415,000; $425,000. We get up to $50,000 [above market value]. The negative is, if it’s too high, your taxes will be appealed and your taxes will go up… Then, they’re going to call me and say, ‘I have to tighten my belt or I’m going to have to sell the house.'”
She added that the competing offers are causing the prices to go up, so buyers must make sure they factor taxes into their purchase. If the monthly payments and the taxes together are out of reach, walk away. The last thing she wants for her buyers is to have them call her in two to three years and say they can’t afford it and have to sell, because if the market bounces back in two to three years, they will never recover the money they paid.
The agents we spoke to all agree there is a lot of risk to consider right now when purchasing a home, as you can see. Unfortunately, time is a luxury buyers don’t have. They say if you go through the pre-qualification and credit check processes, and you find a home you like, you have to at least put in an offer on the spot. If you take even just one day to think about it, that house will be gone. Offers are even being made before inspections and appraisals are finished.
Purpura’s last piece of advice for buyers is to save more money to stay in the game. A missed opportunity on one house allows time to save up more and make a better offer next time.