What Pending Home Sales Mean To First Time Home Buyers

This was fully expected, but it is important to first time home buyers:  Pending Home Sales spiked 8% higher versus January’s figures.

We’re also retracing the steps before the big boom last November at the end of the last first time home buyer tax credit.  For today’s buyer, this is big news.

Back up a step.  A “pending home” is one that is under contract, but has not yet sold.  It basically marks a home that is removed from the supply.  If a lot of supply pushes home prices lower, then a shrinking supply pushes home prices higher.

February was busy, but everyone in the business was slammed in March.  It’s reasonable to expect the March figure to be substantially higher than February’s and April’s could be a barnburner.

Here’s what it means to the first time home buyer who procrastinated:

There are a lot of junky homes on the market.  There are quite a few overpriced homes on the market.  There is not a large supply of well-conditioned, properly-priced homes.

What this means is that the good values in the market are receiving multiple offers.  Hands down, when someone else is bidding on the same home as you, the price will go up.  How much does a multiple offer situation drive up prices?  It depends, but it is measurable.

If this trend holds, making an offer towards April 30th could cost a first time home buyer quite a bit of money.  The “use it or lose it” nature of the tax credit means that everyone else who is out shopping also has up to $8k of the government’s money in their back pocket as well.   That’s one quick way to start a bidding war.

Just like November, my position is the same:  Home Values Are Irrelevant.  In order to secure your home, you need to have a better offer than competitor.  That can be a stronger pre-approval, like using a bank rather than a broker, or can be in the form of a quicker closing, or more earnest money.

The other option is a higher offer.  For first time home buyers who wait until April 30th, the offer prices will be higher.

It is smart to go under contract sooner rather than later.   Pending Home Sales is a warning shot.  Higher home sales figures are ahead.