Keepin' It Real Estate: Just How Hot Is the Housing Market?
By Andrew Jeffery Sep 17, 2009 8:40 am
Getting to the "bottom" of the housing market.
Existing home sales: Up.
New home sales: Up.
Pending home sales: Up.
Home prices: Down, but at a slower pace.
Even a relic from the booming housing markets of yesteryear has reappeared: Bidding wars.
To be sure, multiple-offer situations are concentrated in lower priced markets, but some sales are simply mind-boggling. Here's a sampling of just how out-of-whack supply and demand truly are in some of this country’s real estate markets:
Costa Mesa, California: Home gets a whopping 68 offers and sells for nearly $100,000 over asking (list price of $399,000, sale price of $495,000).
Manatee County, Florida: Home gets 27 bids, list price $124,000.
Phoenix, Arizona: Home gets 11 offers, sells for 50% above list price (listed at $70,000, sold over $110,000).
Even Canada is getting into the act: A bidding war in Vancouver drove one home up to $1.1 million -- almost $300,000 above its asking price.
Talk to most real estate professionals and it’s the same story: Cash-flush investors and first-time home buyers armed with a federal tax credit, low interest rates, and 3% down-payment loans courtesy of the Federal Housing Administration are bidding up properties with reckless abandon.
So it’s settled then -- we’re at the bottom, right? Unfortunately, probably not.
Before we get too excited about these bidding wars indicating a bottom for the broad housing market, it’s important to consider that these situations are heavily concentrated in areas where home prices are low. The trend is far from prevalent in mid-tier and high-end markets.
Lower priced homes are typically easier for investors to flip into juicy returns and require a smaller cash outlay, which opens the playing field to those without deep pockets. Further, cheap homes attract first-time buyers, who can be more easily swayed into bidding above list by commission-hungry Realtors.
In addition, big banks like Wells Fargo (WFC), Bank of America (BAC), JPMorgan Chase (JPM), and Citigroup (C) are still holding back the majority of their foreclosure inventory from the market. This is partly due to the “soft moratoria” ordered by the White House along with banks being reticent to take big losses on homes that have tumbled in value. This is keeping supply low, frustrating would-be buyers into bidding aggressively with so little inventory to choose from.
Meanwhile, as readers of this column should know all too well, higher-end markets continue to struggle, as jumbo mortgages remain a chore to qualify for and down-payment money is nigh impossible to scrounge together for all but the most qualified buyers.
This dichotomy in the marketplace means now more than ever, anyone considering buying a home should live by the over-used adage that real estate is always local. Markets adjacent to one another, separated by nothing more than a school district line, could be headed in opposite directions -- and it may be that the “good” area is far riskier than the “bad” one.
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2009-09-17 08:52:24
not so sure...
fwiw as a buyer of prime real estate in both new york and toronto, i think you are very very wrong. about problems at the high end. once mortgages are readily available (as they will be) supply is rapidly overwhelmed by demand.
I have no axe to grind. Went to cash 2007 been looking to buy since Sept 2008 til now and unfortunately for me the market has markedly changed for the better for sellers.
I have no axe to grind. Went to cash 2007 been looking to buy since Sept 2008 til now and unfortunately for me the market has markedly changed for the better for sellers.
2009-09-17 09:26:50
Underpricing and pricing errors are more the point.
In many cases we're seeing REO's significantly under priced, and that's what's causing bidding wars.
A perfect example is a colonial in my subdivision, that several years ago would have sold for $240 or more, was recently listed for $149. They had multiple offers, but one bank handed it off to another midstream, and the new bank immediately re-listed it for $105 (despite multiple offers 3 weeks earlier for $45K more)
Of course, when this closes it will look like one heck of a bidding war since it can easily sell for tens of thousands more (but probably not for what the bidders offered when it was $149).
Was this relisted so low out of incompetence or was it deliberate in order to force a bidding war?
Perhaps this was done to make some portfolio manager look good for selling inventory above list price, while at the same time no doubt netting less than the previous offers would have generated.
Tough choice when it comes to lenders and their REO portfolio managers... could be incompetence, deception for personal gain or an attempt to manipulate the perception of the market.
Not that those are mutual exclusive when it comes to lenders nowadays.
A perfect example is a colonial in my subdivision, that several years ago would have sold for $240 or more, was recently listed for $149. They had multiple offers, but one bank handed it off to another midstream, and the new bank immediately re-listed it for $105 (despite multiple offers 3 weeks earlier for $45K more)
Of course, when this closes it will look like one heck of a bidding war since it can easily sell for tens of thousands more (but probably not for what the bidders offered when it was $149).
Was this relisted so low out of incompetence or was it deliberate in order to force a bidding war?
Perhaps this was done to make some portfolio manager look good for selling inventory above list price, while at the same time no doubt netting less than the previous offers would have generated.
Tough choice when it comes to lenders and their REO portfolio managers... could be incompetence, deception for personal gain or an attempt to manipulate the perception of the market.
Not that those are mutual exclusive when it comes to lenders nowadays.
2009-09-17 09:27:33
agree that the risk is in the better areas
bought my house a mile from Arizona State University in 1998 for 160k. Neighbors thought i paid too much.
We are moving and will try to get 350k for it with about 100k of remodeling done in it.
I feel that we need to sell it quickly because, while this area is a prime location (professors and staff at ASU), the prices just cannot stay up like they have. Surrounding areas have taken tremendous hits and I do not believe that the location will be enough to have the houses hold their current prices. I just takes a while for the good areas to come down.
We are moving and will try to get 350k for it with about 100k of remodeling done in it.
I feel that we need to sell it quickly because, while this area is a prime location (professors and staff at ASU), the prices just cannot stay up like they have. Surrounding areas have taken tremendous hits and I do not believe that the location will be enough to have the houses hold their current prices. I just takes a while for the good areas to come down.
2009-09-17 10:37:20
not so sure...
Ben,
I think in some situations you're exactly right, even in the high end. A house here in SF just sold for 30% higher than list, $2.1M after being listed at $1.6M -- it was the cheapest house in the nicest neighborhood of the city. But from what I see, buyers are still being extremely picky and if they can afford to wait, are in a pretty good position.
In general though, everything I see is that there is more pent up supply than pent up demand in the high end, and many buyers finding that renting is still a far better option than buying.
I'm curious if you think the market has changed for the better for the sellers recently or if you've seen the trend for a while now.
Appreciate the comments.
Andrew
I think in some situations you're exactly right, even in the high end. A house here in SF just sold for 30% higher than list, $2.1M after being listed at $1.6M -- it was the cheapest house in the nicest neighborhood of the city. But from what I see, buyers are still being extremely picky and if they can afford to wait, are in a pretty good position.
In general though, everything I see is that there is more pent up supply than pent up demand in the high end, and many buyers finding that renting is still a far better option than buying.
I'm curious if you think the market has changed for the better for the sellers recently or if you've seen the trend for a while now.
Appreciate the comments.
Andrew
2009-09-17 10:40:03
Underpricing and pricing errors are more the point.
No doubt -- the REO world is far from a clean, non-manipulated market. What I find interesting is that even houses that are not under listed are seeing bidding wars. In certain areas there is just so little supply that buyers are truly at their wits end. It's pretty easy to qualify for an FHA loan and with the minimal down payment, an extra $20k, 30 or even 50k just isn't that much more from a monthly payment standpoint.
Our tax dollars, hard at work.
Our tax dollars, hard at work.
2009-09-17 10:41:00
agree that the risk is in the better areas
Mark -- I think you're exactly right, it just takes longer for price discovery and reality to hit markets where owners have bigger cushions and where foreclosures and other forced sales are just now starting to hit.
2009-09-17 10:41:48
Bank Inventory
I agree with the 'soft moratoria' statement. I can't understand why more isn't being said about it. As an occasional buyer of forclosures at sheriff's auction, I can tell you that over the past two years bidding has been a waste of time. Banks are buying everything and for way more than they can get for them - in many cases. I don't believe in conspiracies but this feels like one. A few years ago many of these properties went to individuals. Now it's all banks. Wonder how this 'inventory' is valued on their books. I'd give it 50 cents on the dollar.
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