It wasn't so long ago that you could shop for homes at your leisure, make an offer significantly below asking price and end up with a bargain.
In many parts of the country, buyers outnumber sellers, and homes listed for sale in the morning may be under contract by lunch. Homes in good condition in desirable neighborhoods draw multiple offers and often sell for more than their asking price.
That means buyers must do their homework and be ready to pounce when they find the right house or condo. "In a tight market, you're going to have to act swiftly," says Steven Aaron, who owns a real estate brokerage in Los Angeles and is one of the protagonists of the HGTV series "Selling L.A." He says 90 percent of his agency's listings draw multiple offers. "There's not going to be time to dilly-dally," he says.
At the end of November, according to the latest statistics from the National Association of Realtors, there was a five-month supply of homes for sale nationwide; six months is considered a balanced market. The median time a home was on the market was 56 days, up from 54 days in October but considerably lower than the 70 days in November 2012.
More than a third of the homes sold in November had been on the market for less than a month. Distressed homes – foreclosures and short sales – accounted for 14 percent of sales, down from 22 percent the previous year.
Experts predict the inventory crunch will ease some next year, but exactly when and how much depends on the city. If this is the right time for you to buy, don't be deterred by statistics. Do your homework, and you can still buy a house without losing your mind.
Get your finances in order first. Check your credit well before you begin your search, and a year ahead is not too early. If you find mistakes on your credit report that lower your score, it will take time to get those corrected.
"Clearing up a mistake is not just a phone call," says Andrew Strauch, vice president of product innovation and marketing for MRIS, which runs the multiple listing service in Washington, D.C., and surrounding areas. He recommends starting the process 12 to 18 months before you think you might buy.
Once you've saved enough for a down payment and closing costs and have done everything you can to raise your credit score, it's time to shop for a mortgage. Get quotes from at least three mortgage brokers or bankers and make sure you are comparing apples to apples. If you don't like the interest rate you get from one lender, try another. "Interest rates are still low … and banks are constantly coming up with new offers," says Ruben Sanchez, a real estate consultant for Merca Real Estate Services in Miami.
Once you've found a mortgage professional, get preapproved, not just prequalified, for a loan. You will need a strong preapproval letter to attach to your offer, so the sellers will feel confident that you won't run into financing problems that would sink the deal. To get preapproved, you'll need to submit your income documents, tax returns and more so that the only thing left to approve is the house.
This is also the time to decide how much you want to spend. Just because a bank will approve payments of $1,500 a month doesn't mean you should spend that much. Be sure to include taxes and insurance in your calculations.
Research neighborhoods. Online real estate portals such as Trulia and Zillow, as well as listings from the multiple listing service through Realtor.com, Redfin or real estate agents' websites have given consumers more information than they ever had before. That makes it possible for would-be buyers to research neighborhoods and follow trends.
Decide what's important to you in a home and what is less important. If good schools matter, narrow your search to a certain school district. Consider how far you're willing to commute, and try the commute at the time you'll be doing it because it won't be the same as it was Sunday afternoon.