The pandemic-era real estate market has emerged as a windfall for sellers and a headache for buyers. A shortage of for-sale homes continues to boost prices across the nation by double-digits — and is pushing house hunters to go to extremes to win bids.
Take a home near the Microsoft campus outside of Seattle that was listed for about $725,000. The buyers made a bid without seeing the home, offering $400,000 above asking price and waiving all contingencies — meaning no inspection or mortgage-financing contingencies were required, recalled Ryan Dibble, the chief operating officer of Flyhomes, which represented the seller in the deal.
“Even we were a little bit like, ‘Wow, that’s aggressive’,” Dibble recalled.
Increasingly, offering above asking price isn’t enough to win a bid in the ultra-tight pandemic housing market, according to realtors and buyers. Indeed, going above the asking price is simply the first step in winning an offer, with buyers increasingly offering additional enticements, including waiving inspections for hidden structural problems and providing free “leasebacks” to sellers, or offers for sellers to remain in the homes between one to six months after closing — free of rental charges.
That’s raising concerns among some market observers that real estate prices may be getting overheated, with memories of the 2006 housing bubble that ended in an ugly burst. At the end of 2020, home prices were about 15% higher than a year earlier, before the pandemic shuttered the U.S. economy, according to the National Association of Realtors.
The pandemic real estate market is “beyond crazy and frustrating” for buyers, said George Ratiu, senior economist for Realtor.com. “I wouldn’t call this a normal market.”
Ratiu, who said he believes the market is overheated but hasn’t yet turned into a bubble, said several trends are conspiring to turn the tide against buyers. Almost 5 million millennials are turning 30 each year, entering the decade of their lives when they’re settling down and looking to own their homes, he noted. And historically low mortgage rates are helping to make home purchases more affordable for first-time buyers.
The pandemic also prompted people to look for new homes, especially properties with home offices and outdoor space given the confinement and work-from-home trends of the last year. And while existing homeowners can get eye-popping premiums for their properties, some are reluctant to sell because they worry about their ability to find a new home given rising prices and widespread lack of inventory, which is adding to the logjam in the supply of available housing.
“Because of the new reset in pricing, you have to ask yourself, ‘Can I replace this home anywhere else?,” and secondly, ‘Will I be priced out of my own home, my own neighborhood?'” said Daniel de la Vega, president of ONE Sotheby’s International Realty in Florida. “I was talking with an ex-NBA player. He said, ‘I don’t care if they offer me $20 million for my home, I’m not selling,’ and his home is worth $5 million now.”
The result is that for-sale homes are getting more offers than before the pandemic, with Flyhomes’ data showing that sellers are now receiving an average of 11 bids, compared with about 5 bids before the crisis. [Read more]
First published on May 10, 2021 / 5:00 AM
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