The current housing market is, to put it mildly, historically competitive. A home in the Washington, D.C. area recently listed for $275,000 received 88 offers, 15 of which were sight-unseen and 76 were all cash. Some real estate agents say they haven’t seen a market this competitive since 2006 – if that is even a fair comparison. In the midst of a pandemic, what’s driving the housing market today and what can hopeful homebuyers do to successfully purchase a new home?

Why is the housing market so competitive?

Pent-up demand from Covid-19 concerns

There’s no single reason as to why the housing market is so competitive. Like many trends these days though, Covid-19 is largely to blame – for several reasons. Traditionally, spring and summer are the most popular seasons to list and buy homes. However, in 2020, that is when the pandemic first began setting in, causing many individuals and families to rethink their plans. Some may have been wary of going out into public to view homes or have so many potential buyers tour theirs. Others likely paused their search not knowing if they would still have a job in the coming months. Now that those concerns have been alleviated for many, they are ready to resume their home search, joining others who more recently decided to enter the market as well.

Needing a bigger home for home offices

Many individuals not only were able to keep their jobs, but now find themselves working from home indefinitely – at least for part of the work week. One McKinsey study forecasts that 38% of businesses will implement hybrid work arrangements following the pandemic. This is in sharp contrast to remote work opportunities prior to the pandemic. In 2019, only 7% of private sector workers and 4% of public sector workers had opportunities to work remotely. It’s fair to assume many of those workers did not envision needing a home office when they purchased their home. Now, having a dedicated home office space is invaluable for staying productive and focused when working among other family members, especially young ones.

Low housing market interest rates

Another factor driving many people’s home-buying efforts is current interest rates. Throughout the pandemic, mortgage rates repeatedly have hit all-time lows. In November 2020, a 30-year, fixed-rate mortgage with a 20% down payment could secure a 2.72% interest rate. Granted, as interest rates have gone down, home prices have gone up, driven by buyer demand. From October 2019 to October 2020, the Federal Housing Finance Agency’s index of home prices rose 10.2%. Still, the amount of money homeowners are paying on interest has never been lower.

What does this mean for housing inventory?

For desperate home seekers, it can seem like there are no available houses on the market. That, however, isn’t necessarily the case. In the Richmond, Virginia, area for example, 3,800 more homes were sold in 2020 compared to 2019. It isn’t that homes aren’t available for sale; instead, they simply are going off the market within days of their initial listing. From 2019 to 2020, the number of days homes were on the market dropped 13% in the Richmond area, which is reflective of most of the country.

Navigating the Competitive Housing Market

Use a real estate agent

It’s always a good idea to use a real estate agent when looking for a home, and that couldn’t be truer in this market. As mentioned earlier, homes are going off the market within days – if not hours – of being listed. Knowing what’s coming and recently available is key. Most real estate agents can set up email alerts for houses that fit your specific wants and needs. They also can more easily find out details that aren’t always publicly available such as when offers are being presented and when showings start.

Think through what you’re comfortable offering

In a traditional market, the main question buyers need to answer is their maximum budget for a new home. In the housing market today though, many successful offers include inspection and appraisal waivers.

When waiving an inspection, the buyer forfeits their right to have the home professionally inspected to identify any major issues that the seller needs to fix before closing. With appraisal waivers, the buyer agrees to pay the offer price even if the house doesn’t appraise for that much. Both inspections and appraisals have been longstanding safeguards for buyers, but more and more, many are foregoing those to present a more competitive offer. While these options may make your offer more enticing to a seller, it’s important to understand the risks they present. Be sure to discuss those with your real estate agent for each house you’re considering as every house has their own potential issues and appraisal values.

Owning a home is a tremendous milestone in life and a great long-term investment. Knowing this, it can be a huge frustration for many who are trying to become homeowners in this market. While it may seem dire, don’t get discouraged. All markets eventually change, and the current housing market is no different.

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George Roth Author