Boulder Colorado has been plagued by consistently low, even hyper low inventory. This lack of property for sale for has been going on for say about a decade now. While home sellers might like the idea of no competition, there are negative impacts for both buyers and sellers in this market.
Sellers Do Not Always Appreciate Hyper Low Inventory
Let’s start with appraisals. In a marketplace where there is so little inventory, sometimes appraisers have difficulty justifying sales prices. Let’s say you are getting a mortgage for your new home purchase. You are counting on the appraisal to come in for value.
In a hyper low inventory market, there may not have been an actual recent sale to help the lender’s appraisal justify the transaction price tag. A low appraisal could scuttle your deal if there isn’t an appraisal gap coverage clause. Sellers don’t want deals to die simply because an appraiser cannot find comparable sales!
A few more transactions might make it easier to justify your home’s price and give lenders confidence to move deals forward.
After You Sell Where Are You Going To Live?
Another reason Boulder home sellers may not be infatuated with hyper low inventory of homes might be, what will that person purchase once they sell? I mean, the seller becomes a home buyer after their house gets sold. Right?
But your average seller is going to then run into the same issues on their buyside: hyper low inventory is going to make their opportunity to find a replacement home extremely difficult.
So people otherwise willing to move, might not put their home’s up for sale simply because they don’t want to hassle to find a new one. Guess what? When these sellers don’t sell, it contributes to even tighter inventory of homes for sale.
What Are the Worst Impacts of a Hyper Low Inventory of Homes for Sale?
There were moments, in our marketplace over the last several years, where under contract sales exceeded new inventory coming to the Boulder housing market.
You may have experienced something like this where you live. When this happens, you wind up with multiple offer scenarios.
When under contract sales exceed new inventory, your already hot market goes into overdrive. Multiple offers with insane bidding wars. Waving all sorts of contract clauses, you know you shouldn’t wave, but it happens.
It can be crazy. We’re talking six, ten, twenty offers on one home.
I had clients look at a $450,000 home, make an offer for $100,000 over list price and not win the bidding war. The house ultimately sold for $125,000 over list price — closing in three week’s time. That’s one of the downsides to a hyper low inventory marketplace. Home bidding wars can cause buyers to overpay dramatically.
Another would be new owners waking up to a world of issues. The buyers were so desperate to win the bidding war, they waved their inspection. Then, they get into the new home and have to shell out for broken air conditioning, a new furnace, plumbing repairs. It can be tough.
Throughout the recent years, I’ve almost always recommended keeping the home inspection. You just don’t know what you don’t know.
I’ve seen this from both sides of the coin. Once, we were in a house with a new roof, new HVAC system, remodeled kitchen, refinished floors, new, well you get the idea. I think the only not new item was a hot water heater. I recommended my clients let go of the inspection, especially considering the earnest money was only $3,000. That was a winning strategy.
But, another time, am so thankful my folks kept the inspection. We wrote the offer after viewing at 5 pm in the winter. The next day during the inspection, set in the morning light, the house showed dramatically different. And our home inspector quickly had a list of $50,000 in issues. My clients ultimately bailed out on that house. Too many issues to resolve.
Hyper Low Inventory Requires Appraisal Gap Coverage
Another worst of this sort of marketplace would easily be low appraisals. And a result of low appraisals when inventory is nonexistent is the appraisal gap coverage in contracts. Buyers getting loans basically agree to bring cash to cover any shortfall in the appraisal.
I’ve seen this happen. Sometimes it is the only winning move to get a home.
How Will Higher Interest Rates Impact Market?
Some segments of the marketplace are already seeing inventory take a little longer to sell. This could be reflective of better home inventory choices.
Higher rates will eliminate some home buyers. At three percent, just about anyone could buy a home. And just about everyone did so.
With mortgage home rates up, the buying process has slowed.
Well, two things happen here. First, you are unlikely to be forced to overpay by six figures. That’s good news for home buyers. And when rates come back down, you’ll be in a good position to refinance.
And second, you’ll be unhindered in getting your due diligence completed prior to your Inspection Objection deadline. You are unlikely to have buyer’s remorse after closing and discovering issues.
But what I really want to emphasize is that higher interest rates mean less competition for you to get into your dream home. Don’t make the mistake of waiting for lower rates and having to overpay in competitive markets!
What’s The Advantage To Waiting Out A Hyper Low Inventory of Homes?
I hear some variation on this all the time. I’m waiting for home prices to come down. I started hearing that one when I got my license in 1995. Those buyers missed the boat.
Don’t miss your boat. I wouldn’t wait necessarily for more inventory. Instead, I would be waiting for the right house for you. If that comes along while inventory is tight, be ready to act very quickly. If it comes along when inventory is not the issue, don’t make something else a stopping point. Like higher interest rates. Because there is every likelihood that when rates come back down, the buyer frenzy craziness will take off with a vengeance.
There probably is not an advantage to waiting out one market for another. Or, if you feel strongly like there is, please share your comments below.