Homebuying: Fewer Homes, Higher Prices, Faster Deals
Thursday, May 17, 2018
Amy Cesario has spent more than 15 years buying and selling real estate in the Denver area, weathering housing crashes and watching neighborhoods bounce back. But the realtor for Slifer Smith & Frampton hasn’t witnessed anything like the buyer behavior she’s seeing this spring.
Tired of looking at homes and losing bidding wars, buyers are increasingly aggressive and impatient as prices continue to rise and inventories shrink. Prospective buyers constantly ring doorbells, regardless of whether someone else is in the middle of a showing.
“It’s the most competitive market I’ve ever seen,” Cesario says. “We’re all doing what we can for our buyers and our sellers.”
Vanessa Bergmark sees the same pressures in California’s East Bay. Longtime owner and president of Red Oak Realty, an independent brokerage that does most of its business in and around Berkeley and Oakland, Bergmark says homes for sale move with lightning speed. And as prices rise inexorably, competition gets that much more frenzied. The market is “like the tide, since inventory seems to go in and out by the hour.”
“This is not a slow-moving business,” she says. “It’s not a great market to transact in if you need to sit down and debate a decision.”
|According to Zillow data, homes in the U.S. sold at their fastest pace on record in 2017. This breakdown by metro area shows spikes, mostly in the spring and summer, when the pace accelerated.|
Welcome to what a Realtor.com analyst called “the most competitive housing market we’ve seen in recorded history.” In conversations with more than half a dozen buyers, agents, and analysts in markets across the country, it’s clear that, as demand continues to far surpass supply, especially in the crucial starter-home market, buying a house has become increasingly challenging.
Many observers interviewed for this article said the current situation is merely a continuation of trends that have shaped the last few seasons, especially in expensive markets like New York, San Francisco, and Los Angeles.
While that’s not surprising in traditionally high-demand markets, data suggests much of the country can be considered a “much more competitive landscape.”
Smaller markets have seen a sharp rise in the frequency of bidding wars for homes (defined as multiple buyers submitting offers over the asking price of a home). Cities like Akron, Ohio; Worcester, Massachusetts; and Lexington, Kentucky, have seen the percentage of homes selling over list price jump by more than 80%. The share of homes selling for above asking price rose from 17.8 to 24.1% between 2012 and 2017, according to Zillow data, and the median amount over asking price was $7,000. Homes also stayed on the market an average of 81 days nationwide, the fastest pace on record, and nine days faster than 2016.
It’s about supply, or the lack thereof, says Jonathan Miller, president and CEO of Miller Samuel, a New York City-based real estate appraisal and consulting firm. With the exception of the high-end housing market, where the bulk of new construction activity has been concentrated, a lack of new construction in most of the country has created a “blistering market demand.”
“This is not the sign of a healthy housing market,” says Miller. “We’re still in the hangover phase of the financial crisis. It’s all about affordability. Inventory isn’t keeping up with population growth and demand, and that’s exacerbated by interest rates trending up modestly. There’s an urgency. If you were thinking of buying, there’s a sense that you want to beat the rates.”
A Real Estate Reckoning
This year looks as if it will be especially brutal. In most markets, supply continues to evaporate. Realtor.com says overall inventory decreased over the last 43 straight months, and, according to Trulia, the number of available starter homes was down 14.2% year-over-year in the first quarter of 2018.
Slim pickings mean this spring and summer, traditionally the high points for sales, will see even more potential buyers making bids – since some have already been at it for months – and driving up prices. A survey conducted by digital consumer research firm Toluna Research in early March found that 40% of current buyers have been searching for more than seven months.
Today’s shortage stems from the atypical recovery from the 2008 housing crisis. Since 2012, most markets have seen years of inadequate housing starts, rising prices, and increasing crowds of buyers. According to Attom Data Solutions, the national average home price has appreciated every single quarter since Q2 2012.
This price appreciation makes bidding and buying seem all the more dramatic. According to Marco Carvajal, an agent for Vanguard Properties in San Francisco, the market in his city isn’t more competitive than it has been over the last few years. The stakes just keep getting higher.
“It’s the same kind of excitement and fervor we had in 2015; things now cost an additional 20%,” he says. “What we thought was a ridiculous price in 2015 would be a fantastic deal today.”
The competitiveness of the last few years may be the new normal. Tracy Do, an agent for Compass Realty in Los Angeles, sees the same forces at play in her markets.
Mostly focused on residential listings in Echo Park, Los Feliz, and the San Fernando Valley, Do’s LA territory includes many neighborhoods traditionally seen as rich in smaller starter-home inventory. Nearly every house of that size and price range moves in two weeks, she says, often receiving multiple offers and closing 10 to 12% over ask.
“The rate of appreciation is what’s really so bad right now,” she says.
More buyers, angling for a smaller pool of starter homes, are willing to pay above asking and make all-cash offers to show they’re serious and simply stop the cycle of bidding and rejection.
All-cash sales have constituted nearly a third of all home purchases nationwide for the last few months, according to Attom Data Solutions. While this is lower than the 40% rate of all-cash sales seen in 2012 and 2013, when the recovery started and buyers began taking advantage of slipping and foreclosed homes in earnest, it’s still far higher than historical rates. In the early 2000s, the percentage of all-cash home purchases nationwide normally hovered around the high teens.
Mortgage data shows just how far desperate buyers are willing to stretch to purchase property. According to CoreLogic data, this December, more than 20% of borrowers spent more than 45% of their income on mortgage payments each month, a percentage not seen since the run-up to the Great Recession.
Analysis from Arch Mortgage Insurance Company found that the size of the monthly mortgage payment needed to afford a home rose 5% in the first quarter of 2018 – and may rise an additional 10 to 15% by year’s end.
Annemarie Dooling, 34, who just sold a house in Staten Island, New York, has seen first-hand how heated the market has become. The audience growth lead for Vox Media (Curbed’s parent company), Dooling purchased a three-bedroom condo on the South Shore of Staten Island with her partner for $315,000 in 2008, a fixer-upper she expected to eventually update and sell.
Located in the Rossville neighborhood, not known as one of the metro area’s red-hot neighborhoods, it needed a lot of work.
In December, seeing the pace at which homes were moving, Dooling decided to test the market, even though she hadn’t really invested much time and money in the condo. Within an hour of her agent listing the home on the Multiple Listings Service, she had multiple offers, including an all-cash bid, and ended up selling for slightly more than she paid.
“There was no staging, and it wasn’t in good shape,” Dooling says. “This was a fixer-upper and we had big plans, but it still had the original appliances.”