top of page

Hot Housing Market Continues

By now, we're all very aware of how the housing market is booming. Buyers are competing over incredibly low inventory and paying $50k-$100k over asking. Escalation clauses, appraisal shortfall clauses and over-asking offers, oh my! So the question is, how do you navigate through the hot market?

To start, we should recognize the reasons as to why we're in a seller's market and why prices are on the rise. In the years leading up to the 2008 crash, the US had a surplus of well over 2 millions homes. Slowly, underproduction caught up to us and by 2011 inventory had normalized. Just four years later, the US was then 2 million homes SHORT. By the end of last year, 4.8 million homes short. Fortunately, homebuilding activity in 2021has been above normal. This explains why homes are coming on the market and selling in a matter of days. Paired with historically low interest rates and families looking for more space as a result of the pandemic, the market has set records. With all of this activity, many are experiencing dejavu from the 2008 housing crash. It's important to remember that while there was a lot of activity, it was due to very different reasons. Risky mortgages that overstretched buyers budgets and poor policies that didn't protect the consumer. However, what's happening today is quite different in that 37% of homes in the US have no mortgage. Of the remaining 63%, about 25% have over 50% equity, and over 50% of homes today have more than 50% equity. A good indicator that home owners are not over-stretched.  Just because we're in a seller's market doesn't mean that buyer's can't win too. This is a great time to start the conversation with us about how we can create a buying strategy for success. While the market is very competitive, it is essential to have agents that know how to navigate through all of it. So what can we expect and how can we use that to our advantage? When we are reviewing offers with sellers, we have to consider not just the offer amount, but also the terms of the offer. Is it a quick close? Is it conditional on the sale of the buyers property? How are they financing the home? How qualified are they? It is our job to ensure that we are entering into escrow with a clear plan to reach closing. About 30% of escrows fall out so we are always very careful about guiding clients on which offers to accept. As of recent, we've been seeing more of the escalation clause and shortfall appraisal clause. When you are taking out a mortgage on a home, the lender will have the home appraised. If you offer more than the home is appraised for, then the seller will need to either accept the lower amount or renegotiate. An appraisal shortfall can be useful in this situation as it would say that in the event your appraisal comes in under the amount that was offered, then the buyer will offer a specified amount in cash to make up for some or all of that difference. The escalation clause is used to say whatever offer is received, I'll put an additional amount on top of that offer to make sure we get it. However, keep in mind that if you are financing via mortgage then you'll still have to deal with the appraisal. It's also incredibly important to work with the right lender. We have a list of lenders we work closely with that we would be happy to connect you to. Lenders have recognized in today's market that buyers need to be competitive and in some situations, they are paying for certain things like Termite Inspection Reports or Condo Docs which a seller would normally pay for. It's the small details that can make a world of a difference in an offer.  Contact us today to learn more about how we can help guide you through today's very active market.

Ryan Naka




bottom of page