The buzz circulating around the city is that the housing market is hotter than ever. Out of the country’s 100 largest metro areas, Buffalo emerges as the 7th most affordable region for homeowners. Although, Buffalo homeowners seem to enjoy one of the lowest housing cost burdens in the nation, there’s a bigger burden to bear on the horizon.
Challenges in finding the right home are causing buyers to go well over budget. With a shortage of inventory and homes being underpriced to evoke bidding wars amongst buyers, these homes are selling for more money than they are worth. People are being priced out of the market and forced to stay put, resulting in a shortage of housing for WNY.
Just this past February, the number of homes for sale fell to a 22-year low. Mix in a pandemic and now you have reluctant sellers that did not list their homes, leaving buyers scrambling to find the house of their dreams.
Most of us learned about the basics of supply and demand in economics class, but it isn’t just the low inventory that’s causing the problems within the market. Even with record low mortgage rates, home sales in Buffalo have still been cut in half. Here’s a closer look at some reasons why this market is not sustainable.
According to bestplaces.net, Buffalo has experienced some of the highest real estate appreciation rates of any community in the nation. Yet, the average income of a Buffalo resident is $20,726 a year versus the US average of $28,555 a year. Similarly, the median household income of a Buffalo resident is $31,668 year versus the US average of $53,482 a year. Buffalo also has an unemployment rate of 5.8% while the US average is 3.9%
Local salaries aren’t consistent with the current housing market boom. Many Buffalo residents simply do not have the means to purchase a home in spite of the low mortgage rates. For many homeowners, the variety of responsibilities that come with purchasing a home can be financially taxing. In addition to a mortgage, a homeowner is also responsible for paying property taxes, maintaining the home, and maintaining basic costs of living.
Who decides property value and why it matters.
In a seller’s market, more buyers contend for fewer houses, raising the stakes of the competition. Lowering the price of a property’s market value by $15,000 – $20,000 for the listing to appeal to more buyers has been a common practice as of late and it is up to the realtors and sellers who decide how low they want to go. For example, if a target sale price is $310,000, a home may be listed at $290,000 to draw in buyers looking at homes under $300,000, yet still appeal to buyers with a higher budget.
Most contenders have one shot to make an offer and the top three may end up in a bidding war. Those who have cash on-hand, are pre-approved, or are willing to forgo inspection have the best chances. These buyers are able to outbid everyone else to purchase the home above the listing price.
A recent survey by owners.com found that more than one-third of recent buyers went over budget by $20,000. This data shows the impact setting for offering a lower price to expand the buyer pool. Real estate websites which allow buyers to shop online for homes within their budget using price filters to narrow their search drive more competition. Ideally, homes are to be listed on the market with a true market value using a comparative market analysis. However, some search results appear questionable as properties may be worth more or less than the listed price.
Preceding a sale, a supposedly unbiased professional appraiser walks through and estimates the true value of the home. The qualified appraiser creates a report based on a visual inspection, using recent sales of similar properties (known as comps), current market trends, and unique aspects of the home, to determine the property’s appraisal value. When the appraisal value is lower than expected, the transaction can be delayed or even canceled. Appraisers are supposed to help buyers avoid overpaying for homes and protect them from putting their financial future in jeopardy; It turns out that buyers are paying more than they should on a home in many cases, either because they are emotionally attached to a property or in quick need of housing. It is not uncommon for appraisers to help push through these unconventional high home sales. Forbes has posted on some of these practices.
Adding insult to injury, this phenomenon causes property values to be reassessed for a lot more, forcing the comps in the area to go up, and affecting the entire community with an increase in property taxes.
Overall, it’s a seller’s market. Sellers are getting the more money per square foot than ever before. For those wondering whether the coronavirus might lead to a better deal on a house purchase, it doesn’t look like that will be the case, as of now. Demand is on the rise and sellers are not budging. Local salaries and income remain stagnant while properties and property taxes continue to soar. Buyers are running out of options to relocate within the community and make the move to sell their current homes. Real estate agents’ jobs will likely be affected, and current practices which are driving up home sale prices cannot continue on.
Anyone who tells you that the housing market will collapse… or get better, doesn’t actually know.
I do hope though, that local buyers will not be forced to overpay for housing that they ultimately, down the road, realize they cannot afford. In this city, sellers, realtors, and appraisers should be mindful of how high housing costs affect the financial well-being of the entire community. The current market trends are just not that sustainable.