The coronavirus pandemic has brought out the competitive side in Laura Galeazzo as she searches for her forever home in Rochester, New York.
Galeazzo, a 33-year-old running coach at McKirdy Trained, an online coaching service for runners, has viewed a dozen houses and put offers on three of them, only to come up short as other buyers outbid her and her husband.
She fell in love with one of the first houses they bid on at an open house. The colonial-style, four-bedroom house with 2.5 baths was recently updated with a new roof, furnace and AC.
But an older couple in their 50s stood in front of the open house during the entire time so they could beat other families to the punch as soon as it ended.
“They stared people down to mark their territory,” Galeazzo said, adding that the older couple ended up getting the home when they offered $22,000 over the $234,000 asking price. “They even kept their car parked in the driveway so no one else could get in.”
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Since then, Galeazzo and her husband started driving by other homes in their price range to check out the neighborhoods. But then they noticed they had competition when they kept seeing the same people also drive by the homes they were viewing.
“My racing mentality kicked in. We need to beat them to the next house,” Galeazzo said. “It’s almost like you’re sizing up the competition for a bidding war. What if that five minutes it took to call your realtor made the difference?”
New homeowners face obstacles getting a mortgage without a bigger down payment and higher credit scores since lending standards have tightened in the aftermath of the pandemic. Lenders want to ensure that borrowers can still make their mortgage payments during the crisis following a historic wave of layoffs.
Although mortgage rates hover at historic lows, potential buyers are battling low housing inventory and higher prices, an issue that has plagued house-hunters in recent years and is showing no signs of letting up. Homebuyers must act quickly when debating a purchase, sometimes offering over asking price or getting into a bidding war with other potential buyers.
Low inventory was an issue before the pandemic. Homebuilders that were pummeled by the housing crisis still haven’t returned to a normal production levels to meet current demand. Now the supply shortage is weighing on the housing market even further with increased competition.
Housing inventory has dropped 29% from a year earlier through the week ending June 20, according to Realtor.com.
More than 40% of homeowners who purchased their home during the pandemic reported entering into a bidding war on at least one home, according to recent data from Clever Real Estate, which surveyed 1,000 homeowners from May 31 through June 2 who purchased their home between January and May.
“Housing affordability is a little easier on paper with low mortgage rates, but the bigger challenge is trying to find a home,” says Javier Vivas, director of economic research for Realtor.com. “Housing demand has increased beyond expectations. When you combine that with historically low levels of inventory, it’s a perfect storm for increased competition and an affordability crisis.”
The Boston metro area had the highest rate of competition, with 64.1% of offers written by Redfin agents on behalf of their homebuyers facing bidding wars in May, up from 56% in April. It was followed by Dallas at 60.8% and Washington, D.C., at 57%.
Cash is king
Brett-Ashlee Ward, a first-time homebuyer, put in offers for nine homes over the past three weeks in Oklahoma City. The 23-year-old was beaten out by cash offers every time.
“It’s crazy! How do these people even have that much saved in cash?,” Ward says, a co-host of The Sam Mayes podcast, a sports radio program. “It’s not like I’m low balling,” she said, adding that she offered above the listing prices and didn’t ask the sellers to cover the closing costs.
Ward was preapproved for a $150,000 home loan backed by the Federal Housing Administration, with a 3.5% down payment. She is finally under contract for her tenth offer and hopes to close the deal in early August, she says.
In recent years, requirements eased for higher down payments and credit scores than in previous years. Nearly 40% of homebuyers put less than 20% down on their homes in 2018, up from 22% a decade before, data from Clever Real Estate showed.
New homeowners, however, face a harder time getting a mortgage without a bigger down payment and higher credit scores. Those who purchased a home this year, for instance, were 32% less likely to put less than 20% down on their homes than those who purchased between 2015 and 2019, according to Clever Real Estate.
Home prices aren’t budging
Price growth began accelerating for affordable homes after the World Health Organization declared COVID-19 a pandemic on March 11,according to Redfin, a real estate brokerage. Home prices in many affordable areas have moved higher as buyer demand increased while the supply of homes for sale dropped. Prices will likely continue to grow faster for at least the next few years given this lack of supply, experts say.
Prices of the most affordable homes in the U.S. climbed 5.5% from a year earlier during the 12 weeks ending May 31, Redfin data shows.
In Newark, New Jersey, the most affordable third of homes saw prices surge 14.7% from a year earlier to a median of $211,281 during the 12 weeks ending May 31, the largest increase out of the 50 most populous U.S. metropolitan areas. Philadelphia and Detroit followed, with prices jumping 13.6% and 13.3%, respectively.
Sellers have the upper hand
Amanda Doucette, 27, learned the hard way that she and her husband had to make their offer as competitive as possible, or they’d be left in the dust.
Earlier this month, they made a bid on a home built in 2015 in Grant Park, a newer subdivision in Columbus, Ohio, just a day after it was listed. But there were at least 15 other offers, and they found themselves on the losing end of a bidding war.
The house was on the market for $420,000, and they offered to pay at least $10,000 more and take care of the costs of an appraisal gap if the home was appraised lower than the stated purchase price. Still, the seller chose another buyer.
“My husband and I are fortunate to both work in a field that pays well, we have good credit scores and saved money for a down payment,” Doucette says, who works as a physician assistant at a local hospital in the city. “But we’re still having a hard time finding a home we can afford. Homeownership is difficult even if you do everything right.”