Inventory Shortage in Single Family Housing

If you have been attempting to buy a single family home in Contra Costa County as a personal residence or as an investor, you may have noticed that the competition is tough. Homes priced under $350,000 are receiving multiple offers, and some are all cash offers.

For Sale Home Inventory Shortage

Currently, there is an inventory shortage in Contra Costa County. The image below from the August 2012 Report from the Contra Costa Association of Realtors shows the declining supply of homes for sale in Contra Costa County.

From the chart we can see the downward trend in inventory from the peak in October of 2010. We also see that inventory dropped below 2 months’ supply in February of this year and hasn’t gone above that level.

Causes for the Lack of Inventory

What is causing the lack of inventory?

An article in the Wall St. Journal from September 12, 2012 points to the trend of institutional investors buying foreclosed homes: Firms Flock to Foreclosure Auctions. Firms like Blackrock and Colony Capital have begun buying up large blocks of foreclosed homes at the auction steps in communities across the United States. While private investors generally want a return above 10%, the investment firms are willing to accept lower returns for their institutional investors.

As well, Bloomberg reports that Fannie Mae Sale of Florida Foreclosures Gets 96% of Value. Fannie Mae sold 699 homes in Florida to Pacifica Companies, LLC a San Diego based firm. The homes were valued at $81.5 million and sold for $78.1 million.

Another factor is the number of individuals that are underwater on their mortgage and don’t have the option of selling their home. These home owners would have normally sold and moved up to their next home. However, they don’t have the cash on hand to make a down-payment for the move and the lack of equity in their current home precludes them from selling and moving up.

Buying Real Estate in the Current Environment

So how do you buy a home in the current environment?

1. Get your financing lined up. It is important to have your down-payment available for your purchase. Also, you need to get a pre-approval letter from your lender. A pre-qualification is not strong enough for most sellers. They want to know that a lender has delved into your finances a little deeper.
2. Don’t expect to “steal” a property. With the lack of inventory, this is truly a seller’s market. Many properties are receiving multiple offers. Listing agents in the current market are setting a date in the future to review “all offers”. This means that low ball offers will be compared with high price offers at the same time. Which one would you choose?
3. Write a strong offer based on a reasonable market price. This is part of not expecting to low ball sellers. Your agent should tell you if the property is reasonably priced. A strong offer may be at full price or above asking price. It also might contain a large down payment or a shortened inspection period. A good agent will provide strategies to make your offer more attractive to a seller and competitive to other offers on the table.

In the competitive real estate environment, it is key to have a good real estate agent on your team. If you need help meeting your real estate goals, please feel free to contact me by phone at (925) 385-8798.