When Shannon and Dave set out to convert their three-bedroom home in Central New Jersey into larger living space in April, they thought they would be in pretty good shape to make an offer for their dream home.

The couple owed about $ 300,000 on their mortgage but wanted to sell their home for a good $ 700,000 based on listings for comparable homes in their neighborhood. Even after paying a brokerage commission and land transfer tax (a fee that is incurred when selling a home), they would have a good $ 375,000 left on a new home.

Shannon and Dave analyzed the numbers and found they had the option to pay up to $ 1 million for this new home. While that would have left them a $ 625,000 mortgage, New Jersey home loan interest rates are currently so low that they are comfortable with the monthly payments that would result from a loan of this size.

But three months later, Shannon and Dave still haven't been able to get an offer for a house. And their experience is certainly not unique.

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A lack of inventory hurts buyers

At the national level, housing stock is extremely limited as sellers are reluctant to list their homes. This scenario is also true in New Jersey, and it leads to intense bidding warfare that discourages people like Shannon and Dave from buying anything even though they have quite a bit of money to spend.

The average home price in New Jersey was $ 500,628 for the first quarter of 2021, according to New Jersey Realtors. But even at the lower end of the market there is an extremely short supply of apartments.

Of course, Shannon and Dave didn't want to buy at the lower end of the market. But that didn't help them in the least.

In the past three months, the couple has bid on seven or eight homes only to get another buyer to shut them out, offering between $ 50,000 and $ 100,000 above the asking price each time.

Shannon and Dave even tried to change their strategy by bidding on homes in the price range of $ 800,000 to $ 900,000. They thought this would give them an opportunity to offer more money than the asking price. The problem, however, was that the couple didn't want to spend as much extra cash on homes that they thought they wouldn't rank as highly to begin with.

The problem with spending too much on a home is that it can become difficult to sell once prices start to drop. A $ 900,000 home that would normally sell for $ 825,000 is a risky purchase to begin with. Paying $ 950,000 for this home to win a bidding war is taking an even greater risk because if this home has to be sold in a few years, the home could be back to its original value of $ 825,000 by that time. Dollars fall behind and their sellers face a huge loss.

Take a step back

At this point, Shannon and Dave stop looking for an apartment to focus on enjoying the summer with their children. While they wanted to move over the summer to avoid conflict with the school year, they are tired of spinning their wheels and want to wait for more houses to come on the market.

Fortunately, they are in such a comfortable home that there is really no pressure to move immediately. And while the couple are keen to take advantage of the high price their current home can fetch (the $ 700,000 they'd get right now would normally be closer to $ 650,000), they realize that buying at the same time will all balance out and sell out. That said, if they get a little less selling their home, they will likely spend a little less on another too.

Of course, it's a little sad that a $ 1 million budget isn't enough to give buyers like Shannon and Dave more flexibility in today's red-hot housing market, even in an expensive state like New Jersey. But that's the reality, and like other shoppers in their shoes, they just have to deal with it.

source https://seapointrealtors.com/2021/08/08/a-look-inside-njs-red-hot-housing-market/

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