Here are 10 clear signs you’re in for a competitive ride.
1. Cash is king
One major indication of a competitive market is when sellers can reasonably expect cash offers for their property. If you come in with cash, you’re going to beat out a loan offer every time. If paying in green is not be an option, don’t panic. It’s not the only tool up a potential home buyer’s sleeve.
2. Bidding wars? You betcha
Bidding wars are another sign that competition is fierce. This is when aspiring homeowners try to outdo each other in a battle over who can make the highest offer. Bidding wars are really common on properties with a trifecta of price, really good condition and really good location.
3. A city so hip it hurts (your pocketbook)
When a city becomes a wildly desirable place to live, that is reflected in its housing market. You’ve got to look at where industry’s going and where jobs are going. The tech industry has been a major factor in boosting the competitive edge in a number of markets (think: San Francisco, Seattle and Austin). How do you know when your region has reached the competitively chic threshold? Trendy stores, coffee shops and yoga studios are good indicators.
4. Escalation clauses
An escalation clause may sound like a real estate elf from the North Pole — and it can bring you an early Christmas gift in the form of the house of your dreams. But all of this comes at a price. Inserting an escalation clause in your bid indicates that you are willing to increase the dollar amount of your offer up to a certain point if there are other, higher bids. Why would you do this? Competition.
5. All about the extras
When the prospect of multiple bidders is likely, buyers may try to curry favor with an offer that makes a sale especially easy for the owners, or plays to their emotions. Buyers who write a heartfelt letter explaining why they want the property also give themselves a leg up.
6. Sell price soars above asking price
The simple rules of supply and demand are nowhere more apparent than the housing market. One of the greatest signs of competition is homes that sell for way more than their listing prices, leaving would-be lower bidders back on the mean streets, pounding the pavement.
7. Multiple offers
When you’re a buyer, it’s never the more the merrier. Multiple, rapid bids on properties are a sure sign that it’s a cutthroat market. So are packed open houses.
8. Snatched off the shelf
You’re in a tight market when you search online and there’s just not that much to chose from. That’s because housing is flying off the shelf almost as quickly as it appears. If you find yourself racing to view properties before the competition can get to them, cut down on the stress by setting up an alert on your phone to notify you about new listings.
9. “Tidal wave” neighborhoods
When one neighborhood becomes a hot spot, it’s not uncommon for the next one over to soon follow suit. With a major resurgence in urban renewal, it’s not surprising that these popular areas often top the list of competitive home markets.
10. Offer deadlines
As if buying a house weren’t hard enough, now there are deadlines. Want to get buyers to hustle and create momentum and competition? Set a cutoff. This can only be achieved, of course, in a competitive market where there will be enough bids to set a good old-fashioned due date.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.00 MBS) gained +94 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move lower from the prior week.
Just about all of our domestic economic data showed growth and strength at levels higher than market expectations. This data is negative for MBS (higher rates), yet MBS didn’t sell off – instead they rallied (lower rates). Why? That was due to Fed Speak and Oil.
Texas Tea, Black Gold: After trading above $40 two weeks ago, last week WTI dropped to as low as $36.22 which is a very large swing and was the primary reason that mortgage rates fell. MBS had been under pressure as WTI Oil was rising two weeks ago as it is very inflationary and bond traders viewed it as having an influence on the timing of the next rate hike, but last week those concerns were pulled back as Saudi Arabia said that it would not cut production levels.
The Talking Fed: Two weeks ago, we have several “Talking Feds” (Regional Federal Reserve Bank Presidents) and the overall theme of their speeches was very “hawkish”. But last week, both Janet Yellen and Charles Evans came out on the opposite side and were very “dovish” signaling that the Fed may wait until at least June to make their next move.
Friday’s Jobs report got the most attention but we had a jam-packed week of better than expected data.
Jobs, Jobs, Jobs: Here is the tale of the tape:
March Non-Farm Payrolls 215K vs est of 205K
February NFP revised from 242K to 245K
The average for past 3 months is 209K which is solidly above the 200K mark.
The Unemployment Rate moved upward from 4.9% to 5.0% which is higher than expected.
But that is due to the Participation Rate moving forward to 63% and showed a fresh and new 400K entering the labor force…but until they find a job, they are counted as Unemployed and drag down the rate.
Average Hourly Wages (MOM) were up 0.3% vs est of 0.2% and a nice improvement over Feb’s -0.01%.
Average Hourly Wages (YOY) were up 2.3% vs Feb’s 2.2%.
The Average Work Week was 34.4 hours which matched Feb.
Manufacturing: The Chicago PMI report was much stronger than expected (53.6 vs est of 50.0) and was a nice surge from Feb’s contractionary reading of 47.6. the ISM Manufacturing Index showed continued growth and expansion in the smallest sector of our economy (Manufacturing 20%/Services 80%). It came in at 51.8 vs est of 50.5 and more importantly ended the streak of below 50 readings.
Consumer Sentiment for March was revised from the preliminary reading of 90.0 to 91.0 and was higher than the market forecasts of 90.5.
What to Watch Out For This Week:
The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.
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