If you’ve even been casually browsing real estate listings in recent months, you probably know that the market is very hot right now. Not only has the average home value in Las Vegas increased by 12.6 percent over the past year, according to Zillow, but the median existing home sale price in May was more than 22 percent higher than it was a year ago.
There are some good reasons for this. Low interest rates and higher consumer savings rates throughout the pandemic have brought thousands of new buyers into the real estate market, and the trend toward remote work in the U.S. has caused many homeowners to flee expensive urban housing markets (like San Francisco) in favor of lower-priced markets like Las Vegas.
Higher home prices are certainly a problem for would-be homebuyers, but it’s a problem that is rather straightforward to deal with. On the other hand, higher home prices have combined with an extremely low level of inventory to create a major obstacle for many people. The Southern Nevada housing market has just 0.6 month’s worth of inventory now, while about six months is what would be generally considered a “balanced” real estate market.
As a result, we’re seeing an unprecedented amount of bidding wars, homes going under contract in just days or even hours, and cash buyers throwing their weight around to beat mortgage-dependent homebuyers for the best homes.
What you can do about it
While an all-cash offer will generally carry more weight than an offer with a financing contingency, there are some smart moves homebuyers can make that can help land the home they’re looking for.
First off, get the mortgage process as far along as possible without a specific home to buy. A full mortgage pre-approval (not just a prequalification) represents a firm commitment to lend based on a thorough review of the buyer’s credit, assets and other factors. Having a pre-approval letter from an excellent mortgage lender to submit along with offers isn’t quite as powerful as an all-cash offer, but it’s the next best thing.
Second, if you want to seriously compete with cash buyers, real estate investors, and the countless other homebuyers like you, it’s important to stay on top of things. Set real-time alerts when new listings in your desired location and price range hit the market or, better yet, hire a great buyer’s agent who will do this for you. Be ready to call your real estate agent right away when you find something interesting. And once you decide you’d like to make an offer do so quickly.
Speaking of offers, if this is the first time you’ve bought a home in a while, you might be used to some negotiating practices that will quite frankly get you nowhere in the current market. Now is not the time to make low-ball offers, ask the seller to cover your closing costs or ask for nit-picky cosmetic repairs. Go in with a strong offer right from the start. You could also try to sweeten your offer by putting up a larger earnest deposit than other buyers or agreeing to not ask for any minor repairs after the inspection. Another strategy is to use an escalation clause, which can enable you to automatically outbid other offers up to a certain point.
How long will the low inventory last?
The good news is that there may be some light at the end of the tunnel. The summer is historically when we see the most homes hit the market, and there’s reason to believe volume could be particularly high this year, as a substantial portion of people who would have sold their homes over the past year delayed doing so because of the COVID-19 pandemic. And while housing inventory is still very limited, it did increase slightly in May for the first time since July 2020.
Matt Frankel is a certified financial planner and contributing mortgage expert with The Ascent by The Motley Fool.