We expected the 2017 spring selling season to be hot, but it was hard to anticipate how hot it would actually be. A few of our employees have been house hunting and our Manager of Housing Economics, Ali Wolf, outlines the surprising findings below. The highlights are based on first-hand experiences in Southern California, but this isn’t exclusive to the region. We are hearing the same kind of sentiment echoed across top metros, especially because housing inventory is under 3.0 months of supply in many areas across the country, far below the 6.0 that is generally considered equilibrium.
Bidding wars are no joke. In an environment where housing supply is basically non-existent, consumers are pulling out all the shots, especially in ‘affordable’ price brackets. It is not uncommon for bidding wars to add over $20K to the asking price.
- Personal story: Ali toured a newly upgraded home this weekend in a desirable neighborhood with good schools that was priced in the $500Ks. The house is 1,300 square feet and was built in 1980. By the time the open house finished (the same day the home hit the market), there were already 5 offers. The agent noted nearly 90 visitors over a 6-hour period. The seller is asking the potential buyers to waive the appraisal contingency.
Mortgage rates are creating urgency. Meyers Research spends a lot of time educating clients about rising short-term rates and the likely impact on mortgage rates. For consumers, they don’t discern between the two. Even though the recent mortgage data shows the 30-year fixed below 4.0%, the consumer mindset is still “rising rates.” Consumers are frantic to buy before they get priced out.
- Personal story: A local mortgage broker mentioned some off-the-radar changes he’s seeing with banks. During the last cycle, he was able to lend at a 50% debt-to-income ratio (DTI). Once the housing bust hit, that number was constricted to 43%. Over the past few years, he’s seen this percent creep back up. His firm is lending again with a max 49% DTI.
Flippers are prevalent. Nationally, flippers make up 6% of home sales, according to Trulia. In markets like Las Vegas, Tampa, Atlanta, LA, and Phoenix, that percent jumps to the 7-11% range. Flippers drive up the price of homes, further exacerbating the dearth of lower priced inventory.
- Personal story: Martha visited a community yesterday (a blend of resales and new product) and asked one of the resale agents why the house was empty. The agent replied “This is my house. If you don’t like it, I have another down the road.” This agent bought one of the properties for $460K in October 2016 and is selling for $555K six months later.
While there are some frothy signs in the market, a lot of the demand stems from healthy fundamentals (strong labor market, more consumer savings, better credit scores, etc). The common struggle across many top markets is the dearth of inventory. As long as supply remains low, bidding wars will persist, the math will make sense for flippers, and mortgage brokers will find creative ways to make the purchase work.
We’d love to hear from you. Is your market experiencing the same kind of feverish pace? Please share your stories by emailing us.
Ali Wolf, Manager of Housing Economics
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