Spring showers may bring May flowers to your landscaping, but they also bring homeowners hoping to sell their property something even better: bidding wars! This spring promises to be no different. Industry experts are lining up to predict which housing markets are going to be hot long before summer.
With falling home inventories, improving jobs markets, increasing consumer confidence, and looming rising mortgage interest rates, more and more sellers are seeing multiple offers on their homes. The question is: how should this affect your real estate investing strategy?
Housing consultant and former Fannie Mae economist, Thomas Lawler, told Bloomberg that “Homebuyers are going to find this spring that, in a lot of markets, the inventory of homes priced and sized at price levels they were hoping for will be very limited,”. He added that the bidding wars are likely to extend to what he called “unlikely places.”
So what were those buyers Lawler refers to “hoping for,” and where are the “unlikely places?”
According to recent study published by the analysts at Estately.com, the hot markets that usually spring to mind when you think of bidding wars are keeping company with some surprise metros in the Southeast and Midwest.
Of course, Oakland, San Francisco, and San Jose topped the bidding war list. Properties in those cities routinely sell for over asking price. However, Aurora, Colorado; Chicago, Illinois; Tucson, Arizona; Atlanta, Georgia; and Cleveland, Ohio all posted selling prices at least 20 percent over asking, and some of them nudged right up on 30 percent…
Ideally for real estate investors, bidding wars are not a part of the process if you are hoping to get into a property for under market value. So instead, you need to make some great connections in order to get off-market deals, because on-market deals are definitely in demand!
The hottest commodity right now is the affordable starter home.
Chief economist for the National Association of Realtors, Lawrence Yun, didn’t beat around the bush about this issue. He said, “Foot traffic is strong, but low supply of affordable homes is pushing up prices and pressuring the budgets of prospective buyers.”
According to the NAR, median sales prices nationwide rose 7.7 percent last month over prices a year prior, but sales volumes fell. In fact, existing home sales fell last month by four percent compared just to January of this year.
Sam Khater, deputy chief economist at CoreLogic, said that he believes buyers’ current willingness to fight for the homes they want is largely due to a widespread belief that soon interest rates will rise. “In today’s market, many buyers think the trough in rates is over. If you don’t get in now, it’s just going to be worse later,” he said.
The rising demand is compounded by more older homeowners’ decisions to remain in their homes as they transition into retirement. Traditionally, they would have downsized or moved into various active or assisted-living facilities. Today’s retirees and soon-to-be retirees are the healthiest generation of older homeowners yet, though, and they are not feeling the desire or necessity of moving.
Chris Herbert, managing director for Harvard University’s Joint Center for Housing Studies, told Bloomberg in a separate interview that the Baby Boomers are could be “part of the glue that is keeping the market stuck.”
With bidding wars on the rise throughout the country, are real estate investors out of luck?
Not really. There are still options.
Remember, real estate investors act differently than traditional homebuyers, so you don’t need to be too concerned that the only way to snag a property is to get into a bidding war. You can always find off-market deals either by leveraging a network of other investors or by strategic advertising, or by the old-fashioned method of door-knocking.
Also, these bidding wars are not really slowing things down if you have unconventional financing available, as many investors do. If you don’t need a 30-year mortgage to finance an investment, you can compete with those eager buyers bidders all day.
In fact, nearly one in four real estate transactions during this year were cash transactions. While some of those transactions could have been homeowners, it’s pretty safe to assume the majority were investors – and it’s also pretty safe to assume that they weren’t paying retail if they were paying in cash!
And finally, take note of the “Southern exception to the rule.” In the southern U.S., home sales actually rose 5.9 percent last month. Some southern cities did post some pretty hot prices, because the south is turning into something of a mecca for affordable housing and young professionals and their families.
So remember, real estate is local! These national numbers are informative, but only with a little regional information thrown in to help you see where you might be able to get in ahead of the curve…
Side note: We have found some off-market deals in Atlanta that we are excited to share with our members. Be sure to join the network so you can be first to know about these kinds of deals.