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.”
The fast pace of homebuying in the U.S. in 2017
Metro area | Average days on the market | Fastest-selling month | Average days on market during fastest-selling month |
---|---|---|---|
Metro area | Average days on the market | Fastest-selling month | Average days on market during fastest-selling month |
United States | 81 | June | 73 |
New York, NY | 134 | July | 122 |
Los Angeles, CA | 64 | May | 59 |
Chicago, IL | 91 | June | 82 |
Dallas, TX | 55 | May and June | 49 |
Philadelphia, PA | 97 | June | 89 |
Houston, TX | 81 | April and May | 65 |
Washington, DC | 75 | May | 64 |
Miami, FL | 110 | June | 97 |
Atlanta, GA | 71 | June | 63 |
Boston, MA | 72 | June | 67 |
San Francisco, CA | 43 | April and May | 41 |
Detroit, MI | 73 | June | 65 |
Riverside, CA | 74 | June | 68 |
Phoenix, AZ | 66 | October | 62 |
Seattle, WA | 47 | May and June | 42 |
Minneapolis, MN | 69 | May | 63 |
San Diego, CA | 56 | May | 52 |
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 percent. The share of homes selling for above asking price rose from 17.8 to 24.1 percent 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 percent 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 percent 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 percent,” 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 percent 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 percent 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 percent of borrowers spent more than 45 percent 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 percent in the first quarter of 2018—and may rise an additional 10 to 15 percent 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.”
Demographics are destiny for the housing market
Part of the problem for first-time buyers today is the lack of available starter-home inventory. Just as the millennial demographic hits prime homebuying age, baby boomers want to downsize to the same homes young adults want.
In Denver, Cesario says that she’s increasingly seeing downsizing empty nesters snap up available inventory, making bids on mid-priced homes and moving back into the city. That stifles move-up buyers, which in turn means less inventory for first-time buyers.
Bergmark, who has seen some of the same dynamics play out in the East Bay, says the hottest sector of the market is smaller homes priced between $700,000 and $1.2 million. Those are the homes that see a dozen, sometimes even 20, offers.
“The break-into market is the one with all the activity and competition, and where all the major bidding wars happen,” she says. “I try and tell buyers to learn quickly. The list is not going to be the sales price. Don’t get beat up by the illusion; you’ll get resentful.”
Despite the frustration, and the clear demand for more housing, few observers predict this dynamic will change anytime soon. In a recent statement, Doug Duncan, senior vice president and chief economist at Fannie Mae, said, “the tightest supply in decades, combined with rising mortgage rates from historically low levels, will likely remain a hurdle for mobility and a persistent headwind for home sales.”
Carvajal says that many of the couples he’s working with in San Francisco want the same thing: a single-family home or condo, priced between $850,000 and $2.5 million. But there are only so many pieces of property in the city that fit that bill. Due to zoning and building restrictions put in place by local government, he says, there’s no real relief in sight.
“Anything we plan to build today, we’re not going to see on the market for three to five years,” he says. “That’s one of the biggest reasons we’re in such a housing crisis. It’s because of local government, and San Francisco not wanting to see growth happen. And they’re surprised about rising housing costs.”