Last year was nothing if not gangbusters for luxury markets across the U.S., and that momentum has carried into 2021, even in areas that would traditionally experience a slow season in January and February.
A large part of what’s driving prices upward is a chronic lack of inventory, with many sellers unwilling to part with properties or navigate a move in the middle of a pandemic, and in a sales market that’s currently so tight.
“What we’re hearing from our agents is that a lot of people who might be interested in selling aren’t, because they don’t know where they would move next since the market is so heavily slanted towards sellers,” said Redfin chief economist Daryl Fairweather.
“The big question is how high prices can go,” said Scott Durkin, president and chief operating officer of Douglas Elliman. “We’re having inventory shortages in all our markets. And [low interest rates] give buying power to buyers, and give sellers power to ask for a price they couldn’t get in a different market.”
All of this translates into serious leverage for sellers who are game to get into the market right now, while inventory remains so low, and other sellers have yet to enter the fray.
Though demand is expected to remain strong throughout 2021, an eventual increase in inventory, a waning pandemic, and a possible increase in interest rates in the second half of the year might translate into a more balanced market with fewer bidding wars. Redfin forecasts the potential for a “slight chill to the scorching-hot seller’s market.”
Tight Inventory Limits the Competition
Particularly in the booming single-family home market, inventory has evaporated over the course of the past year, creating a prime opportunity for sellers to list without facing much competition.
“We’ve never seen inventory as low as we have [this year],” said Candace Adams, president and CEO of Berkshire Hathaway HomeServices New England Properties, Westchester Properties and New York Properties. “Inventory is very low, and pending sales are double what they were a year ago.”
“And we have massive buyer demand,” Ms. Adams said. “What you’re seeing is a buyer will bid on a couple properties and lose, then on the third or fourth they start to bid up.”
In Miami-Dade County, inventory for single-family homes priced over $1 million has decreased 37% over the past year, said Ron Shuffield, president & CEO of Berkshire Hathaway HomeServices EWM Realty, while the pace of sales has increased by 120%.
“That’s what any home seller wants to see, that they have less competition and more buyers,” said Mr. Shuffield, who’s based in Miami. “The thing we’re already concerned about is, what are we going to do when we run out of inventory?”
Part of the issue is that many high-net-worth buyers are keeping their options open, purchasing new homes without selling their other properties.
“Many of the areas that people are buying in were second-home areas, and now they’re becoming primary or co-primary areas,” Mr. Durkin said. “Buyers are absorbing the inventory and just keeping what they have, owning two or three homes.”
For sellers, this means carefully considering your options before making a move, whether that’s downsizing or taking the proceeds from a sale to a cheaper market where your money will go further.
“We’ve had several deals that have fallen apart because the seller backed out, because they had nowhere to go,” Mr. Durkin said. “When you sell in a high market, you can’t trade up in the same market. Sellers are thinking, ‘What’s my plan, what do I do?’ Maybe you sell on the east coast then migrate to Florida or Texas, buy something where your money would go a long way.”
But the natural appeal of a full-blown sellers’ market is likely to eventually draw more listings—and therefore more competition—eventually.
“We think with this robust real estate market, it’s already unlocked demand, and it’s going to start unlocking some supply as well,” said Philip White, president and CEO of Sotheby’s International Realty. “If you’re a homeowner and your price just went up 25% and you’re thinking about moving somewhere, that’s pretty compelling.”
Article Source: Mansion Global