What to know about buying a home in a low inventory market

People who have shopped for homes at any point over the last few years are undoubtedly aware that inventory is low. While low inventory has affected home prices and priced some buyers out of certain markets, the good news is the tide may have started to change as 2023 drew to a close.

A December 2023 report from the National Association of Realtors indicated home sales rose by nearly 1% in November, during which single-family home construction grew by 18% compared to October.

Each of those figures could prove a harbinger of good things for buyers in 2024. However, it can still pay dividends for such buyers to prepare themselves to buy in a low-inventory real estate market.

Prepare to offer more than the asking priceData from the NAR indicates that nearly one-third of all homes (28%) purchased in October 2023 were sold above the asking price. When buyers have fewer homes to choose from, the competition for homes on the market increases, and that typically means buyers will offer more than the asking price for homes they truly want. It might not be necessary to offer more than the asking price on a given home, but it’s something buyers in a low inventory market must be ready to do.

Prepare to find some additional moneyOffering more than the asking price can be tricky, particularly if a buyer’s offer exceeds the home’s appraised value. The real estate listing service Trulia notes that most lenders will not approve a mortgage for more than the appraised value of a home. Conventional wisdom may indicate it’s never a good idea to offer more for a house than its appraised value. Still, that scenario has played out more frequently in the current low inventory market. Buyers who feel they need to offer more than the appraised value to get a home will have to come up with the extra funds to make up the difference their mortgage won’t cover.

Flexibility can be your friendA low inventory market is a seller’s market. Buyers who can be flexible regarding seller demands and requests might get the keys to a new home faster than those who are not as accommodating. Some sellers may request a quick closing, while others may need extra time in the house to move into their new property. Entering the process with the intention of being flexible can be an advantage for buyers in a low inventory market.

Patience can prevailIt might seem as though the real estate market will never again have ample inventory. However, the increase in single-family home construction and forecasts predicting mortgage rates will drop suggest the market could feature more inventory in the months to come. Buyers concerned about going over budget or making a hasty decision are urged to remain patient if they cannot find a home that works for them personally and financially.