I wrote last month that Mahomet’s real estate market has a couple of solid years of recovery under its belt and that there is reason for optimism for 2014. As of this writing, there are 81 active single-family residential listings throughout the M-S School District. In the last twelve months, 194 such listings sold and closed. That means today’s inventory of active listings, taken collectively, constitutes a five month supply.
A six month supply of homes for sale is generally considered the benchmark for a balanced market—one neither biased toward buyers or sellers. Anything less than that tends to point to an inventory shortage that benefits sellers, while a larger supply tends to give buyers more leverage as they choose from a more abundant supply.
But the picture varies considerably when considering specific price ranges. The following graph shows the current distribution of active listings by price range:
There are currently 27 active listings in the $100,000 to $200,000 range, which translates into just under a four month supply. When further narrowing this segment to include only houses (not zero-lots and condos), there are only 17 active listings that constitute a 2.65 month supply. Now we’re talking about a serious inventory shortage.
I have seen this inventory shortage manifest itself anecdotally, even during the grip of the harshest winter we’ve experienced in years. Of my last two listings in the M-S School District that hit the market at under $200,000, one received an offer in less than 24 hours, while the other received an offer within the first week. There may have been other offers, too. I just won’t know about them until I see the frozen would-be buyers (and their REALTORS®) thaw out of the last of the snow drifts, clutching real estate contracts in their icy fingers.
If you’re a seller in this affordable market segment with short supply, you’re sitting pretty. If you’re a buyer, you might well find yourself on the unpleasant end of a feeding frenzy. The affordable housing shortage is likely to persist—particularly in the sub-$200,000 price range—because the supply is pretty well fixed. With today’s prices for materials and labor, along with ever more demanding building code requirements, entry level new construction homes in Mahomet currently start at the $200,000 mark.
This means that the Mahomet area has a bit of a housing gap when you consider the entire spectrum of housing options. Many people are well aware of the many high-end developments for which Mahomet has become well known. The graph above shows that the largest number of active listings is in the $200,000 to $400,000 price range, with another 17 available homes priced above $400,000. There are many lower end housing units, including a large mobile home community and many different apartment communities.
So how can folks wanting to purchase family sized homes in the $100,000 to $200,000 range get a foothold in that competitive segment? Here are a few suggestions:
Shop during the off-season if you can. Because Mahomet tends to be a school district driven community, and because most leases end in the middle of the summer, demand really spikes seasonally, as the graph below shows. If you can bail out of your lease early (legally, of course), or if you can extend your current lease to enable you to get out early next year, you can side-step the biggest rush of buyers by buying in the off-season. Additionally, people with homes that are unsold during the off-season will often be more motivated to sell.
Work with a good REALTOR® who configures the Multiple Listing Service to send you instant alerts for new listings of interest, and then get out to see them immediately to maximize your chances of snagging the home before someone else does. Here’s an insider hint: many agents foolishly toss new listings into the MLS with only a photo or two. They add a full set of photos days later when a virtual tour provider gets a photo shoot scheduled. Many buyers automatically rule out listings with few (or no) photos, but if the property’s specs looks like they could possibly be a fit for you, use the listing agent’s bad marketing to your advantage to get in the door before other people figure out that it is a nice place.
Give new construction a fair shake. Yes, you’ll pay considerably more per square foot, but you may realistically be able to afford to pay (and finance) a higher purchase price when the higher energy standards could save you $50 to $100 per month in utility costs. If you apply $75 in monthly utility savings to your mortgage payment, at a 4.5% rate on a 30-year mortgage, you could borrow another $11,000. Keep in mind also that every depreciable part of the property will be brand new, under warranty for at least a while, and many years away from replacement, including windows, roof, furnace, a/c, and appliances. You’ll also likely have a lower maintenance budget during the early years as compared to an existing home. Finally, talk to your REALTOR® about how buying new gives you a nice head start in your new home before full-size real estate tax bills kick in, which can lower your total cost of ownership significantly during the first year.
Consider zero-lot homes. These are usually (but not always) attached on at least one side, but you own your own home and your own lot. The name is derived from the fact that at least one of the exterior walls of the home has zero setback from the lot line—usually where there is a common wall. Many people rule such properties out, thinking back on some horrendous apartment dwelling experience in their past when they could hear everything going on through the walls. Modern zero-lot homes designed for owner-occupants have a nearly one foot thick common wall that consists of four layers of drywall and two layers of insulation. So unless your neighbor is fond of hosting thumping hip-hop dance parties that register on a seismograph, you will probably never hear anything through the common wall.That leaves the upsides: still having your own yard, but not as much to maintain, and enjoying more square footage and more amenities for the price.
Consider an adjustable rate mortgage (ARM). No, not a teaser rate, interest only mortgage that is made regardless of your credit or employment and makes you feel dirty. Those are—deservedly—extinct. If you’re looking for a way to bump up your purchasing power a bit, consider a 5/1 or 7/1 ARM. These are 30 year loans with an initial rate that is fixed for a period of five or seven years, followed by annual adjustments (based on an index) thereafter. These loans often offer considerably lower rates than a 30-year fixed mortgage. If you won’t be in the house longer than the initial fixed rate period (and think of how many folks don’t stay in their homes for more than five to seven years), then you’ll sell and pay off the loan without having ever been subjected to a rate adjustment. If you have a job with predictable increases in your income, trading a lower rate now for the possibility of higher rates several years later can be a very sensible trade-off if you know that increased income or decreased debt will comfortably enable you to afford a higher payment if the rate increases.
As mortgage rates are widely expected to trend upward over the next year or two, if you plan to be in the area for at least a few years and have not yet purchased a home, consider purchasing sooner rather than later, while today’s combination of pricing and mortgage rates offer you more purchasing power.
Matt is a partner with RE/MAX Realty Associates, the area’s market leading firm with offices in Champaign, Mahomet, and Monticello. Matt is a longtime resident of Mahomet. He was the 2012 President of the Champaign County Association of REALTORS® and was the Association’s 2013 REALTOR® of the Year. He is a graduate of the University of Illinois College of Law, but he regained his senses without ever seeking to obtain a law license.
All statistics are from the Champaign County Association of REALTORS®, and are deemed reliable, but are not guaranteed.
