This is the second installment in Inman’s Inventory Insanity series on the extreme housing supply shortage. For the first installment, click here, and check back in the coming days for more.
Though the real estate market has long been competitive in pockets of the U.S., the great thing about America is that there’s typically always been somewhere else that’s affordable. Drive an hour or two outside of San Francisco or New York, and you could find a deal. It’s an idea that’s baked into the country’s foundational mythology.
Now, however, that idea is collapsing in entirely new ways. Thanks to a unique convergence of an underproduction of homes, demographic shifts and the coronavirus pandemic, home price explosion isn’t just limited to the coasts any more. Instead, there are bidding wars across Minnesota and Connecticut and Florida and pretty much everywhere in between.
To get a sense of what is going on, Inman reached out to dozens of real estate agents. The takeaway from these conversations is that they’re exhausted after writing dozens of offers and doing endless showings. Their clients are disheartened after losing countless bidding wars. Agents are an entrepreneurial bunch and many remain upbeat — and in some cases are doing well financially — but the workload is unquestionably heavier now.
Here are some of their stories:
Jill Stencil, Legacy Premier Realty, Cape Coral, Florida
Stencil recently had a listing that got nine offers within 24 hours of it going live. She’s seen homes in her market go for as “little” as $30,000 over their asking prices, and for as much as $100,000. And she’s had to write offer after offer for clients, even when she knows they’ll keep getting beaten.
“I have to call them up and say, ‘Hey we lost another one. We did the best we could,’” Stencil told Inman. “You’re riding that wave with them. That’s hard.”
Stencil said that in her area “cash is king” and buyers who need financing don’t stand much of a chance. The situation has become so competitive that she recently advised some FHA clients to simply bow out and wait for a better time. Those clients understood, but generally speaking Stencil said it’s just extraordinarily tough right now to be a buyer in her region.
“People are crying,” she added of her buyers who have lost over and over.
The situation has also trickled into other markets. Apartment complexes in her area are filling up with would-be buyers who can’t find homes. In other cases, people have begun buying mobile homes as they wait for a better opportunity. And asked how the real estate community in her area is holding up, Stencil replied that everyone is “exhausted.”
“We are running around like crazy people,” she added.
Tiara Smith, Keller Williams, Columbia, Maryland
Smith is currently working with four buyers. One of them just had an offer accepted — but not before looking for two months and having six or seven previous rejections. In the end, getting a winning offer required looking in a different county, waiving contingencies, offering more earnest money and “looking at everything we could do” to seem more competitive.
“He couldn’t believe it had finally gone through,” Smith said of her client when he found out the offer had been accepted.
Smith is typically a buyer’s agent, and explained that this year that means working with clients for much longer because it’s so difficult for them to actually get a home.
“They want to go on these showings every day, day in and day out,” Smith explained. “It’s our duty to do our best, but I also have a family. I can’t do showings 24/7. We’re having a hard time, too. We’re human.”
Tim Heyl, Keller Williams Realty International, Austin, Texas
When Heyl first started in real estate back in 2009, there was somewhere in the neighborhood of 19,000 homes for sale in Austin, Texas. This spring, he said it’s closer to 1,000.
“We’re just way way behind on inventory,” he said, adding that prices are up by 30 percent in his area.
But the price increases haven’t deterred buyers.
Instead, Heyl has seen listings getting as many as 150 offers. And he recalled one house that fetched $400,000 over its asking price. In total, he said that Austin has only nine days of inventory, when a healthy market should have six months. The impact of this situation is that buyers are gradually hardened by the experience of losing multiple times.
“If it’s your first time to make your offer, you’re almost definitely going to lose,” Heyl explained. “You’re competing against people who have already been losing a bunch. You’re competing against all these people who are coming from a place of pain.”
Rebecca Nemeth, Zip Code East Bay, Oakland, California
Nemeth works on the east side of San Francisco Bay, which has historically been a relatively more affordable part of the expensive region. But she said that lately conditions have gone “nuts” as wealthy buyers flood into the area from San Francisco.
“We’ve always had more demand than supply,” she explained. “What’s changed is that we have some buyers who have inordinate amounts of money. But we also still have normal humans who want to live here.”
Many of those well-heeled buyers are millennials who work in technology and make hundreds of thousands of dollars per year. Others have substantial backing from family, thanks in part to baby boomer parents whose own houses have appreciated over the years.
Either way though, homes in the area are routinely selling for hundreds of thousands of dollars over their asking prices, and one even nabbed $1 million more.
“At first we were kind of in shock,” she said.
Shannon Todd, Cromer and Company, Anderson, South Carolina
Anderson lies about halfway between Atlanta and Charlotte, North Carolina, and Todd told Inman that historically asking prices in the city of just under 30,000 people were a “starting point” that typically went down during negotiations. But in recent months, that has flipped and houses are now uniformly selling for more than their asking price.
“It’s just changed so much,” she said. “It’s really, really frustrating. Summertime last year wasn’t like this.”
One reason it’s frustrating is because buyers in the area have expectations that are now out of alignment with the market, Todd explained. They talk to friends and family who bought houses before this spring price spike, and can’t grasp how they now have to offer as much as $25,000 over a home’s asking price to be competitive.
Todd described recently writing up a 10th offer for one of her clients. In some cases, she continued, clients have also submitted offers, then seen online that the house is pending (to another buyer, of course) before they ever heard back from the listing agent.
“I love my buyers,” she added. “But nobody is going to give them a chance right now. I hate it.”
Yu Jie Chen, RE/MAX Results, Eden Prairie, Minnesota
Chen has been in real estate for 12 years, but in all that time she hasn’t seen anything like what’s been happening in her market since about February.
She told Inman offers in her area are typically coming in between $15,000 and $30,000 over a home’s asking price. To be competitive, buyers also have to waive inspections, have fast closing times and turn over huge sums of earnest money. If someone comes in with an offer at a home’s asking price, it now sounds like they’re trying to lowball the sellers. It wasn’t always this way.
“It’s like a rollercoaster,” she said. “It’s really tough. It is a very different market. And it’s exhausting working with buyers.”
Chen wasn’t sure when conditions might calm down, though she speculated that the current inventory shortfall in her region could linger until the fall or beyond. And on top of all the other challenges, the real estate industry itself is getting more and more crowded.
“It’s difficult because right now we have the most agents,” she said, “and the least inventory.”
Dan Smith, Anvil Real Estate, Orange County, California
Smith, a principal at Anvil, and his wife, a broker at his company, began the process of looking for a second home in Orange County, California, several months ago. They wanted a space that they could provide for the agents at their company to use, and they began making offers with waived contingencies, short closing times and 50 percent down payments.
“We didn’t even get counters,” Smith told Inman.
The couple shifted strategies multiple times in an effort to find a property, but in the end they only managed to win by finding a place that needed work and which Smith said perhaps wasn’t being shown in the most effective ways. Overall, the experience was difficult, and unprecedented.
“These conditions are common today,” Smith explained, “but not really in the history of real estate.”
Asked about the agents in his community, Smith said the overall sentiment among many is one of discouragement.
“As long as I’ve been in real estate, which is now 24 years, I’ve never seen such a dramatic noticeable case of the ‘haves’ and the ‘have nots,’” Smith said. “There is no middle class any more. You’re either crushing it or you’re struggling.”
Kerrian Latty, Equity Realty Group, Trumbull, Connecticut
As 2021 was beginning, Latty decided she was going to commit to helping first-time buyers. But little did she know how much of a commitment that would be.
“Half the battle is educating our clients on how to bid now and telling them they have to block out the norm of trying to get a good deal,” Latty told Inman. “After you do that half, then you’re just trying to get your offer in. You’re praying that the listing agent is truly presenting all these offers.”
Latty’s market is adjacent to New York City, so some buyers are coming in with lots of cash and high salaries. She described working with several such buyers, who love that they can get yards and driveways at a relative bargain.
But that also makes it difficult for locals. Latty said historically in her market buyers typically offered at or below a home’s asking price, and rarely had to compete with more than one or two other offers. Now, however, buyers are having to offer $25,000 or $50,000 over asking, and may be competing with 20 offers. The difference is stark.
“This market is the craziest market I’ve ever seen,” she said.
For buyers relying on financing, especially FHA financing, it typically takes losing several bidding wars before they’re even able to grasp how competitive it really is. And of course, that means more showings, more writing offers and more exhaustion for agents.
“It takes being rejected for them to understand that they can’t get a deal,” Latty said. “This year for buyer’s agents is terrible.”