A new development is catching home buyers off guard as the spring sales season gets under way: Bidding wars are back.
From California to Florida, many buyers are increasingly competing
for the same house. Unlike the bidding wars that typified the go-go
years and largely reflected surging sales, today's are a result of
Peter Earl McCollough for The Wall Street Journal
Debbie and Bill Wetherell received multiple offers for their home.
"It's a little surprising because we thought
bidding wars were done with," said Andy Aley, who is looking to buy his
first home in Seattle's Beacon Hill neighborhood. The 31-year-old
attorney was outbid this year when he offered up to $23,000 above the
$357,000 listing price and agreed to waive inspections and other closing
Competitive bidding in the current environment isn't producing huge
price increases or leaving sellers with hefty profits, as occurred
during the housing boom. Still, the bidding wars caused by tight
inventory provide the latest evidence that housing demand is starting to
pick up after a six-year-long slump.
An index that measures the number of contracts signed to purchase
previously owned homes rose in March to its highest level in nearly two
years, up 12.8% from a year ago and 4.1% from February, the National
Association of Realtors reported on Thursday.
"We very much believe we've hit bottom," said Ivy Zelman, chief
executive of a research firm, who was among the first to warn of a
downturn seven years ago. Earlier this week, she raised her home-price
forecast for the year, calling for a 1% annual gain, up from a 1%
Street Journal's quarterly survey found that the inventory of homes
listed for sale declined sharply in all 28 markets tracked. Real-estate
agents consider a market balanced when there is a six-month supply of
homes for sale. At the height of the housing crisis, in 2008, there was
an 11.1-months' supply. In March, there was a 6.3-months' supply.
Inventory levels in many markets were
at the lowest level in years. At the current pace of sales, it would
take just 1.5 months to sell all the homes listed in Sacramento, Calif.,
and 2.4 months to sell all the homes listed in Phoenix. San Francisco
and Washington, D.C., each have 3.4 months of supply, while Miami has
4.1 months of supply.
Other markets have plenty of homes.
Chicago, for example, has 9.4 months of supply, while New York's Long
Island has 16.1 months of supply. Even in those markets, the number of
houses for sale is edging down.
Increased competition is frustrating
buyers and their agents. "We're writing a record number of offers, but
we're not seeing a record number of closings and that's because it's so
competitive," said Glenn Kelman, chief executive of real-estate
brokerage Redfin Corp. in Seattle with offices in 14 states.
Nearly 83% of offers that Redfin
agents have made on behalf of clients in the San Francisco Bay area this
year and 71% in Southern California have had competing bids. Redfin
represented a buyer that made the winning bid on a Gaithersburg, Md.,
home earlier this month after agreeing to adopt the dog of the seller,
who was relocating and looking to find a new home for "Buddy," a white
Inventories are declining for a number
of reasons. Some sellers, unwilling to accept prices that are still
down from their peak by one-third, are taking their homes off the market
in anticipation of higher prices down the road. Meanwhile, investors
have been outmaneuvering consumers for the best properties, often making
cash offers that are quickly accepted by sellers.
In addition, some economists say that
inventory levels are being held artificially low because Fannie Mae,
Freddie Mac and the nation's biggest banks have been slow to list for
sale hundreds of thousands of foreclosed homes they currently own. The
lenders slowed down foreclosure sales and repossessions after
record-keeping abuses surfaced 18 months ago.
Banks and other mortgage investors
owned nearly 450,000 foreclosed properties at the end of March, and
another two million mortgages were in some stage of foreclosure.
Inventories could rise, putting more
pressure on prices, if the banks and other lenders step up their efforts
to sell their properties. Real-estate agents say they aren't concerned.
"There's an enormous appetite for foreclosures. Release the inventory.
It will sell," said Richard Smith, chief executive of Realogy Corp.,
which owns the Coldwell Banker and Century 21 real-estate brands.
declining inventory of older homes is spurring sales of new homes. New
home sales are up 16% so far this year, compared with a year ago, while
inventories of new homes fell in March to their lowest level since
record keeping began in 1963.
Meritage Homes Corp., a builder based
in Scottsdale, Ariz., reported Thursday a 36% increase in orders for the
quarter ending in March versus the previous-year period.
Even though bidding wars are pushing
prices higher, many homes are still selling for prices far lower than a
few years ago. Increased demand is "entirely affordability driven, which
tells me there will be strong resistance to price increases" by buyers,
says Jeffrey Otteau, president of Otteau Valuation Group, an East
Brunswick, N.J., appraisal firm.
Rents are rising at a time when
mortgage rates have fallen to very low levels. The result is that the
monthly mortgage payment on a median-priced home is lower than any time
since the 1990s. Freddie Mac reported on Thursday that mortgage rates
fell to 3.88% for the average 30-year fixed rate mortgage, near its
lowest recorded level.
are "so low that we can afford a house that was out of our price range
before," said Aarthi Srinivasan, who is looking with her husband for a
home around Palo Alto, Calif., one of the country's hottest real-estate
Ms. Srinivasan says she fears that
prices are being bid up too quickly. She says she had her "aha moment"
earlier this year while touring a 50-year-old house that needed
extensive remodeling. The home, listed at $1.1 million, received nearly
10 offers and eventually went under contract for more than $1.3 million
to a buyer who hadn't even viewed the property.
"There are only so many buyers who are
going to be in such a hurry, so we're hoping it'll top off soon," she
says. On Monday, they offered to pay more than the $1.2 million list
price for a four-bedroom, bank-owned foreclosure. They haven't found out
if they made the top bid.
On the other side of those
transactions are sellers like Debbie and Bill Wetherell, who had 17
offers in four days for their four-bedroom home in Danville, Calif. "I
was floored. It was so fast, it was surreal," says Ms. Wetherell. The
home sold on Wednesday for $796,000, more than $50,000 above the asking
Still, the sale is for nearly $180,000
less than what they paid for the house in 2005. Ms. Wetherell's husband
has commuted to Reno, Nev., for five years and they have decided to
Housing markets face other headwinds.
More than 11 million homeowners owe more than their home is worth. It is
a big reason that the "trade-up" market has been stalled. These
homeowners can't sell their current homes, let alone come up with the
down payment for their next home.
Mortgage-lending standards remain
tough. Real-estate agents say an unusually high share of deals are
falling apart because homes won't appraise at the price that buyers have
agreed to pay sellers.
Still, borrowers with stable jobs are
looking to make deals. Kelly Pajela-Fu and her husband offered to pay
the asking price of $600,000 for a four-bedroom home in Marblehead,
Mass., within a day of the property hitting the market.
"We just knew this house would go
quickly," says Ms. Pajela-Fu, a 31-year-old doctor who had lost out on
an earlier offer. Their strategy to avoid a bidding war paid off: The
sellers accepted their offer before having an open house.