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(CNN) – Ellen Coleman had never received so many offers on a home in her 15 years of selling real estate.
She listed a repairman in suburban Washington, DC for $ 275,000 on a Thursday. On Sunday evening, she had 88 offers.
“The offers kept coming in,” she says. “I felt like Lucy with the chocolates. I’m like, ‘It’s just out of control.’ “
Of those 88 offers, 76 were all cash, said Coleman, who works for RE / MAX Realty Center. There was not even enough time for all of the bidders to view the property. She said 15 offers were invisible.
The four-bedroom, 1,800-square-foot home sold for $ 460,000, an increase of almost 70% from asking price. She said the winning bid was not the highest bid, but was completely cash, with no contingencies, and there were documents in place. The buyer, she said, is an investor who is likely to renovate and resell for an even higher price.
“It was cheaper property for the area and maybe an outlier,” she said. But even his other listings usually come close to 15 deals. “Several people came to become owners and do the repairs themselves. The stocks are so low and people feel like this is one way to get into a house. “
In fact, the inventory of homes available for sale is now at an all time high, leading to competition and increasingly higher home prices in many parts of the country. With demand for homes remaining strong, it’s hard to imagine when the market could become more affordable and this has left many buyers wondering whether they should act now or just wait.
Why are house prices on a tear?
It was a different story a year ago. Home buying fell off a cliff when the pandemic took hold in the United States, with home sales falling by about 40%, said Chris Stroud, head of research at HouseCanary, a real estate technology and analysis company.
But while home sales rebounded last May, inventory has not rebounded.
“This has been the theme from then until today,” he said. “As a result, prices have been on a tear on the rise due to lack of supply.”
The median price of a home is up 16% from a year ago, according to the National Association of Realtors, and they’ve increased even more in parts of the country like the northeast and west, both of which are up 21% from last year.
Meanwhile, inventory continued to linger at record levels. In February, the number of homes available for sale fell by almost 30% compared to a year ago.
Frustrated buyers want to know when this ends?
“In the second half of this year, we’ll see higher mortgage rates and as they go up it will cool down,” said Brad Dillman, chief economist at Cortland, a multi-family real estate development company.
“Homes will stay on the market longer, markets will accumulate more active listings. House construction will continue and new houses will pile up a bit. These will continue to moderate price appreciation. “
But that doesn’t mean that homes will become much more affordable for buyers.
Home prices rose 10.4% at the end of 2020 from a year ago, according to the US National Home Price NSA S&P CoreLogic Case-Shiller Index, with cities like Phoenix, Seattle and San Diego recording the biggest price increases.
“I don’t think people are getting a 10.4% increase in their income or savings rate to justify these gains,” Dillman said. “It’s the competition for a house that drives up the price.”
Why are there no houses to buy?
Even in a sellers’ market, many people avoid the scramble they would face to find their next home and stay put, said Liz Brent, broker and founder of GoBrent, a Maryland real estate company.
Millions of homeowners have taken advantage of historically low interest rates over the past year to refinance to a lower rate, a more affordable payment, or a shorter loan term on their current mortgage. These owners are unlikely to be moving anytime soon, Brent said.
In addition, an additional 2.57 million homeowners are participating in forbearance programs with their lenders, according to Black Knight. These homeowners may eventually sell to find a more affordable living situation, but not at this time.
As home builders make headway to build inventories in the market, home construction fell to its lowest level for six months last month, according to the Commerce Department. The decline, in part due to severe cold in many parts of the country, has only exacerbated inventory problems.
“People want to think it’s related to the coronavirus,” Brent said. “Yes, there are people who don’t want to sell because of the pandemic, but we are in a housing crisis that has been growing for years.
And increased competition for fewer homes that sell for ever higher prices is shifting the goals for many buyers trying to save, especially first-time buyers.
“Unfortunately, when you have 5, 10, 15, 25 bids on a home, the only buyers who get homes are extremely secure buyers and buyers who are willing to say ‘I’ll pay almost anything’,” Brent said.
Buy now or sit down?
Even though inventories have declined over the past year, the pool of buyers has grown, said Carlo Siracusa, president of residential brokerage at Weichert.
“The inventory will remain tight for a while as there are all these buyers coming into the market – city dwellers, millennials, first-time buyers – looking for a bigger space or to live in a new place,” said he declared.
Siracusa doesn’t think it makes sense to wait if you’re ready to buy now. “Interest rates will go up. But there is no indication that house prices will go down. The demand is high, the supply is low. “
Additional inventory should be available later this spring, said Danielle Hale, chief economist at Realtor.com. This will at least provide more choice, but not necessarily price relief.
More sellers usually show up in early May, she said, but there will always be more buyers than homes. So if buyers are hoping to steer clear and expect lower prices, they might be disappointed.
There’s a point where some of the demand frenzy is going to slow down, Hale said. When people cannot qualify for a loan for the home they would like to live in or when renting makes more sense, they may give up on the search and the rate of price growth will slow down.
“But prices will remain stable or continue to rise, because there will always be more buyers than sellers and interest rates will rise,” she said.
While rising rates could eventually lead to lower prices in the long run, hesitant buyers could miss out on the benefits of historically low short-term rates.
“If you find the home you love and can afford it, that home won’t be around for long,” said Melissa Cohn, an executive mortgage banker at William Raveis Mortgage. “If you’re comfortable you can buy it, you should continue. Interest rates will go up. It’s a certainty.
She said that usually when rates go up house prices go down – or at least stop rising so quickly. But not immediately and not everywhere.
The housing market will eventually cool down, Cohn said. “But that doesn’t mean prices will drop 20%.”
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