Home prices soar in frenzied US market drained of supply

Bloomberg

Last year’s pandemic housing rush is now this year’s end-of-lockdown feeding frenzy.
Across the US, house hunters are fighting for scraps in a market picked clean of listings during the key spring homebuying season. Bidding wars are the norm. Strategies like waiving inspections to secure deals, common for years in hot West Coast tech hubs, are popping up in places from Buffalo, New York, to Salt Lake City.
Demand is so fierce that almost half of US homes are selling within a week of hitting the market, a record pace, according to Redfin. Annual price growth reached 17% in March, the highest in data going back to 2012. Urgency is amped up, with real estate agents commonly limiting bidding to a few days and then pitting buyers against each other.
This clamour is intensifying a pandemic boom begun last year, fueled by record-low mortgage rates and demand for bigger houses in a remote-work world. Now, growing optimism about an economic recovery — as well as the prospect of rising borrowing costs — are bringing out Americans who are flush with savings from a year of staying home. Some employers also are signalling long-term job flexibility, enabling buyers to spread out to the suburbs or move to cheaper locales.
At the same time, the supply of homes is shrinking fast. Inventory in the warmer months typically expands because sellers like to list in the spring to have deals closed by summer, when families can settle in before school starts. But in March, the number of active listings dropped by more than 40% from a year earlier
to the lowest level on record, according to Redfin. Builders can’t build fast enough, so many are jacking up prices to boost margins as costs climb for materials, land and labour.
“The builders have been whining forever about people not having down payments,” said John Burns, a homebuilding consultant. “What’s different about this spring is how much cash people have.”
Supply is scarce, in part, because homeowners are reluctant to put their properties up for sale because they may struggle to find something they can afford to upgrade to. The pandemic also plays a role for people who don’t want strangers traipsing through homes for open houses. But those who do sell are getting rewarded handsomely.
Buyers are bidding high and waiving inspections and mortgage contingencies even if that results in them having to make up difference if the home value appraisal falls short. They’re doing what it takes to stand out, said Jim Black, a broker who works in the normally-tame area of Worcester, Massachusetts, about an hour west of Boston.
The boom threatens to extinguish itself with soaring prices pushing homes out of reach for would-be buyers, especially as mortgage rates rise off record lows. Inventory might also grow after the pandemic subsides because Americans who postponed moves could decide to put homes on the market.
For now, demand is surging practically everywhere.
For the first time ever, the average US home is selling for above its list price, Redfin data show. In Austin, Texas, possibly hottest market thanks to a flood of transplants from expensive areas like Northern California, homes sell for 107% of asking prices. Of 429 large counties measured by Redfin, 310 saw median prices jump at least 10% in February from a year earlier.
Only 17 had declines, including the counties that comprise San Francisco and the biggest outlier of them all, Manhattan. The pandemic badly damaged the New York market — yet competition in the suburbs is stiff.
Buyers from New York and California who are getting the green light from employers to work remotely are bidding up prices in cheaper cities such as Atlanta, Dallas and Grand Rapids, Michigan. Suburban areas also are thriving as some companies adopt hybrid models that enable people to live in far-flung regions while commuting to urban centers a few times a week.
Feeling confined in their Washington, DC, townhouse, Lauren Ayers and her husband decided to find a bigger place in the suburbs with a yard so they can adopt a dog and have room for family to visit. Ayers, who works for the federal government, says the opportunity was hard to pass up, with rates low and her employer signaling that flexible work options weren’t going away anytime soon.
But the hunt for a house in the Maryland suburbs quickly proved frustrating. After visiting a dozen homes and losing out on one bid to an all-cash buyer, they took no chances when a house they loved came on the market in March. The couple sweetened the pot for the seller, waiving all contingencies and offering to let them live for free in the home for a month after closing.
The strategy worked. They bid over the $700,000 asking price and beat out more than a dozen other buyers, some of whom had higher offers, Ayers said.