Competition amid a record-low inventory of homes on the market is fueling bidding wars. An average of about 28% of homes sold above their list price in Jan. and Feb.
LOS ANGELES (AP) – The red-hot U.S. housing market is widening the gap between what a home is objectively worth and what eager buyers are willing to pay for it.
Fierce competition amid an ultra-low inventory of homes on the market is fueling bidding wars, prompting a growing share of would-be buyers to sweeten offers well above what sellers are asking. Home prices have rocketed to new highs and many homes are selling for more than their appraised value.
“This might be the most competitive housing market we’ve ever seen in the United States, at least in modern times,” said Jeff Tucker, a senior economist at Zillow.
The share of U.S. homes purchased above their list price has been steadily rising since early last year after the housing market began to bounce back from a brief slowdown in the early weeks of the pandemic. An average of 20.3% of homes sold last year went for more than their list price, up from an average of 14.2% in 2019, according to data from Zillow.
Homebuyers appear no less eager to sweeten offers this year. An average of about 28% of homes sold above their list price in January and February.
The trend is apparent in the nation's most expensive housing markets. Some 54.4% of homes in sold in San Francisco in February went for more than advertised, while 51.6% did in Seattle. Some 42.1% of homes sold above their list price in the sprawling metropolitan area spanning Los Angeles, Long Beach and Anaheim, California.
Still, even in less pricey housing markets, bidding wars are pushing up prices. Some 41.2% of homes sold in in February in Wichita, Kansas, went above the list price, and 60.5% did in Boise, Idaho, Zillow said.
While sales of previously occupied U.S. homes slowed in April for the third straight month, the dearth of properties on the market has kept prices climbing to new highs. Last month, the U.S. median home price surged 19.1% from a year earlier to a record $341,600, according to the National Association of Realtors.
Homes are being snapped up within days. Nearly 90% of homes sold in April were on the market for less than a month, according to the NAR.
Meanwhile, buyers' increasing willingness to outbid rivals is distorting the objective measure of home values.
Last month, 19% of homes had their appraised value come in below the contract price, according to data from CoreLogic. In the same month the two previous years it was 8%.
“The frequency of buyers being willing to pay more than the market data supports is increasing,” said Shawn Telford, chief appraiser at CoreLogic.
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This past month continued to be a seller's market and if this article tells us anything it's that sellers are holding all the cards. Many properties are continuing to see multiple offers, with a large number of them being over ask. In order to ensure the sale, we are seeing more and more buyers adding the contingency to cover the cost difference if the appraisal comes back lower than the offer. What?! This is unheard of! However, I will say that we are already starting to see lenders become more strict with preapprovals for new buyers. This tells me that we are going to start seeing a shift in the market. With fewer preapprovals being granted, we will see fewer and fewer buyers looking to buy which will start to sway the market. Interest rates are still low so it is still a good time to buy but, in my opinion, I think the best is yet to come and buyers will start to have the opportunity to pay more realistic prices for homes. We'll just have to wait and see.
