This past year was a record breaker for many housing markets, including North Texas.
Low-interest rates led to historic sales in 2020 and now 2021 is kicking things off with historically low inventory. That means those who are selling are overwhelmed with dozens of instant offers and buyers are having to shell out more money to compete for the home they want.
“The competitive nature of the housing market he really is no joke," said Erik Wheater, a young first time home buyer.
He just got the keys to his brand new house in Dallas this month but he said it was quite the adventure getting to that point.
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"You’ll see a listing and you’ll go visit a house that you love and you’ll find out the next day that there’s a pending offer on it," Wheater said.
Luckily, his realtor guided him through the ups and downs.
“I’ve heard of people competing with more than 20 other offers so the competition is stiff out there but it’s certainly not impossible," Wheater said.
Wheater was essentially searching for his perfect home in the perfect storm.
"It’s incredible to see these numbers when we’re in the middle of a health crisis and a recession," said Dr. Luis Torres of the Texas A&M Real Estate Research Center.
He's been tracking the trends diligently for years and said he is shocked to see how the market has reacted to the pandemic so far.
When the federal reserve cut interest rates to near-zero last year due to the pandemic, it reduced mortgage rates along with it. That leads to everyone seizing the opportunity to buy a house.
"It's the principles of economics class. What happens when you have strong demand with weak supply? The prices go up," Torres said.
With so many homes being snatched up, there's now a record-low shortage in inventory. The mismatch between supply and demand has prompted a wave of new home construction. Single-family permits are predicted to rise around 15 percent in 2021, Torres said.
“Homebuilders are trying to satisfy demand in the lower price cohorts by building homes in the suburbs or outer city borders where land costs are lower,” he added. “This trend was prevalent before the pandemic but has become even more widely adopted over the past year.”
However, the pandemic has impacted the flow and cost of materials so some developers can't build enough homes fast enough to satisfy demand.
Outside of new builds, buyers are turning to individual sellers but due to the low inventory, some are reporting up to 30 offers on one home.
"Overall, to give you an idea for Dallas-Fort Worth, the inventory is at around 1.3 months of homes listed for sale. That’s crazy. Not even the housing boom from 2006 and 2007 did we see that type of inventory. In a normal market, will see six months of inventory," Torres explained.
In addition to low mortgage rates, a spike in population growth in Texas is adding to the housing demand. Texas added 374,000 residents in 2020, more than any other state in the country.
“Demographic trends, such as aging millennials and migration from out of state, will help drive Texas housing demand in 2021,” said Torres.
Unfortunately, the combination of demand and low inventory is forcing prospective home buyers to prepare for paying more.
“Once we realized that there were seven or other offers on the table, we knew we were going to have to come together with a conventional loan that was higher than the asking price," Wheater said.
Having a local lender and being pre-approved for a conventional loan ended up helping him to beat offers from out-of-state buyers. His advice to others: Be patient, find a good realtor and get ready to move fast on a home at a moment's notice.
“So having our pre-approval and having our paperwork ready to rock ‘n’ roll was critical in being able to beat out some of the other offers," he said.
Real estate experts say this unusual market won't last forever. Torres is predicting interest rates to go back up at some point in 2021 and more inventory to come online, which could possibly bring some of those home prices down.
To read more about his real estate predictions for 2021, click here.