By Tom Salomone
Learn more about Tom on NerdWallet’s Ask An Advisor
In many areas of the country, the high demand for homes is starting to outpace supply, creating what is known as a seller’s housing market. That means homeowners who are looking to sell have an increased likelihood of selling quickly or receiving an offer that is at the asking price or above.
It’s basic supply and demand. Unfortunately, it isn’t great news for potential buyers.
Recent National Association of Realtors data show that unsold housing inventory was just over a 4.7-month supply, below the 6-month supply needed for a generally balanced market. What this means is that based on the current sales pace, it would take 4.7 months to exhaust the supply of homes for sale on the market.
The problem posed by a tight housing supply is that it sparks bidding wars and raises selling prices, and the proof is in the numbers. Existing-home prices surpassed their all-time peak this spring and have climbed on average more than 5% nationally through the first five months of the year. The trend is even more pronounced in areas with severe home supply shortages.
This type of market can be frustrating for renters looking to buy homes and “move-up” buyers trying to purchase new, larger homes. They face minimal home choices, strong competition from other buyers and home prices growing faster than their incomes, especially those buyers with a smaller available down payment.
>> MORE: How much house can I afford?
If you are thinking of buying a home this summer, don’t be intimidated by the real estate market. Overall, the fundamentals of the market remain as favorable for buyers as in past years. With the right help and a good plan, you could be in a new home by fall.
Here are a few tips for buyers looking to purchase in this summer’s seller’s market:
1. Work with a Realtor
When housing supply is tight, an attractively priced home will likely draw multiple offers. Find a Realtor, a member of the National Association of Realtors, who has experience with homebuyers and sellers in your desired purchase location.
For most Americans, real estate transactions are the most complicated, stressful and important financial moves they’ll ever conduct. While online real estate information can be helpful, a professional can provide you with insights and invaluable market information, including how fast homes are selling and for what price.
A Realtor can also work with you to put together a strong negotiation strategy to help make your offer stand out among others. Fewer homes on the market translate into more pressure to make quick decisions for buyers, so it’s best to be prepared with a well-thought-out strategy.
2. Stay within your budget
With fewer listings of homes available for sale on the market, home prices are prone to rise as bidding wars for available properties drive them higher. Don’t be in a situation where you’re caught competing against other buyers and counter-offering above what you can comfortably afford.
Before you start shopping for your dream home, find out what you can afford by receiving a preapproval from a lender to determine the amount of money you’re qualified to borrow. A Realtor can make recommendations for several lenders that can help you determine how much you can afford and get you preapproved for a mortgage. When determining your final budget, consider the other costs of homeownership, such as taxes, insurance and utilities.
Don’t be afraid to walk away if the price surpasses your budget; winning a bidding war could feel like losing if you end up spending above your means. Stay patient — NAR research shows that buyers typically searched for 10 weeks and looked at a median of 10 homes.
3. Focus on needs versus wants
As you begin your home search, stay focused on what you really need in a home. For some people, a specific number of bedrooms or access to public transit to get to work are absolute must-haves, whereas hardwood floors and a main-floor laundry may not be deal breakers if the right home comes along.
As part of this evaluation, buyers should always get to know an area and its home styles and amenities, and visit open houses to compare homes in their price range thoroughly. When selecting neighborhoods, remember to take into account the area’s schools, recreational facilities, community expansion plans, traffic and safety, and your personal plans for the future.
If you are thinking of buying a home soon, do your homework and talk to a professional. Following his or her advice will give you the advantage you need to become a homeowner this summer, a wise move for today and for your future.