From yesterday's Wall Street Journal:
A new development is catching
home buyers off guard as the spring sales season gets under way: Bidding wars are back.
California to Florida, many buyers are increasingly competing for the same house. Unlike the bidding wars that typified the
go-go years and largely reflected surging sales, today's are a result of supply shortages.
"It's a little surprising because we thought
bidding wars were done with," said Andy Aley, who is looking to buy his first home in Seattle's Beacon Hill neighborhood.
The 31-year-old attorney was outbid this year when he offered up to $23,000 above the $357,000 listing price and agreed
to waive inspections and other closing conditions.
Competitive bidding in the current
environment isn't producing huge price increases or leaving sellers with hefty profits, as occurred during the housing boom.
Still, the bidding wars caused by tight inventory provide the latest evidence that housing demand is starting to pick up
after a six-year-long slump.
An index that measures the number of contracts signed to
purchase previously owned homes rose in March to its highest level in nearly two years, up 12.8% from a year ago and 4.1%
from February, the National Association of Realtors reported on Thursday.
much believe we've hit bottom," said Ivy Zelman, chief executive of a research firm, who was among the first to warn
of a downturn seven years ago. Earlier this week, she raised her home-price forecast for the year, calling for a 1% annual
gain, up from a 1% decline.
The Wall Street Journal's quarterly survey found that the inventory of homes listed for
sale declined sharply in all 28 markets tracked. Real-estate agents consider a market balanced when there is a six-month
supply of homes for sale. At the height of the housing crisis, in 2008, there was an 11.1-months' supply. In March, there
was a 6.3-months' supply.
Inventory levels in many markets were at the lowest level in years. At the current pace of
sales, it would take just 1.5 months to sell all the homes listed in Sacramento, Calif., and 2.4 months to sell all the
homes listed in Phoenix. San Francisco and Washington, D.C., each have 3.4 months of supply, while Miami has 4.1 months
Other markets have plenty of homes. Chicago, for example, has 9.4 months of supply, while
New York's Long Island has 16.1 months of supply. Even in those markets, the number of houses for sale is edging down.
Increased competition is frustrating buyers and their agents. "We're writing a record
number of offers, but we're not seeing a record number of closings and that's because it's so competitive," said Glenn
Kelman, chief executive of real-estate brokerage Redfin Corp. in Seattle with offices in 14 states.
Nearly 83% of offers that Redfin agents have made on behalf of clients in the San Francisco
Bay area this year and 71% in Southern California have had competing bids. Redfin represented a buyer that made the winning
bid on a Gaithersburg, Md., home earlier this month after agreeing to adopt the dog of the seller, who was relocating and
looking to find a new home for "Buddy," a white toy poodle.
Inventories are declining for a number of reasons. Some sellers, unwilling to accept prices
that are still down from their peak by one-third, are taking their homes off the market in anticipation of higher prices
down the road. Meanwhile, investors have been outmaneuvering consumers for the best properties, often making cash offers
that are quickly accepted by sellers.
In addition, some economists say that inventory levels are being held artificially low because
Fannie Mae, Freddie Mac and the nation's biggest banks have been slow to list for sale hundreds of thousands of foreclosed
homes they currently own. The lenders slowed down foreclosure sales and repossessions after record-keeping abuses surfaced
18 months ago.
Banks and other mortgage investors owned nearly 450,000 foreclosed properties at the end
of March, and another two million mortgages were in some stage of foreclosure.
Inventories could rise, putting more pressure on prices, if the banks and other lenders step
up their efforts to sell their properties. Real-estate agents say they aren't concerned. "There's an enormous appetite
for foreclosures. Release the inventory. It will sell," said Richard Smith, chief executive of Realogy Corp., which
owns the Coldwell Banker and Century 21 real-estate brands.
The declining inventory of older homes is spurring sales of new homes. New home sales are
up 16% so far this year, compared with a year ago, while inventories of new homes fell in March to their lowest level since
record keeping began in 1963.
Meritage Homes Corp., a builder based in Scottsdale, Ariz., reported Thursday a 36% increase
in orders for the quarter ending in March versus the previous-year period.
Even though bidding wars are pushing prices higher, many homes are still selling for prices
far lower than a few years ago. Increased demand is "entirely affordability driven, which tells me there will be strong
resistance to price increases" by buyers, says Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick,
N.J., appraisal firm.
Rents are rising at a time when mortgage rates have fallen to very low levels. The result
is that the monthly mortgage payment on a median-priced home is lower than any time since the 1990s. Freddie Mac reported
on Thursday that mortgage rates fell to 3.88% for the average 30-year fixed rate mortgage, near its lowest recorded level.
Ms. Srinivasan says she fears that prices are
being bid up too quickly. She says she had her "aha moment" earlier this year while touring a 50-year-old house
that needed extensive remodeling. The home, listed at $1.1 million, received nearly 10 offers and eventually went under
contract for more than $1.3 million to a buyer who hadn't even viewed the property.
"There are only so many buyers who are going to be in such a hurry, so we're hoping
it'll top off soon," she says. On Monday, they offered to pay more than the $1.2 million list price for a four-bedroom,
bank-owned foreclosure. They haven't found out if they made the top bid.
On the other side of those transactions are sellers like Debbie and Bill Wetherell, who had
17 offers in four days for their four-bedroom home in Danville, Calif. "I was floored. It was so fast, it was surreal,"
says Ms. Wetherell. The home sold on Wednesday for $796,000, more than $50,000 above the asking price.
Still, the sale is for nearly $180,000 less than what they paid for the house in 2005. Ms.
Wetherell's husband has commuted to Reno, Nev., for five years and they have decided to relocate.
Housing markets face other headwinds. More than 11 million homeowners owe more than their
home is worth. It is a big reason that the "trade-up" market has been stalled. These homeowners can't sell their
current homes, let alone come up with the down payment for their next home.
Mortgage-lending standards remain tough. Real-estate agents say an unusually high share of
deals are falling apart because homes won't appraise at the price that buyers have agreed to pay sellers.
Still, borrowers with stable jobs are looking to make deals. Kelly Pajela-Fu and her husband
offered to pay the asking price of $600,000 for a four-bedroom home in Marblehead, Mass., within a day of the property hitting
"We just knew this house would go quickly," says Ms. Pajela-Fu, a 31-year-old doctor
who had lost out on an earlier offer. Their strategy to avoid a bidding war paid off: The sellers accepted their offer before
having an open house.
Thanks to Garret Hiller and John Poast for providing this!
June 15, real estate agents working with distressed homeowners whose loans are backed by Fannie Mae and Freddie Mac should
expect to receive a decision on a short sale offer within 30-60 days.
The GSEs issued new guidelines Tuesday that fall under the Servicing Alignment Initiative rolled out last fall and aim to bring greater transparency
to the short sale process and expedite decisions related to these pre-foreclosure sales.
Not only is a short sale an effective foreclosure
alternative when home retention is no longer an option, but it keeps homes occupied and helps to maintain stable communities,
according to the Federal Housing Financing Agency (FHFA).
Addressing real estate practitioners’ No. 1 complaint about short sales, FHFA directed
Fannie Mae and Freddie Mac to establish a new uniform set of minimum response times that servicers must follow in order
to facilitate more efficient short sale transactions.
The GSEs’ new short sale timelines require servicers to make
a decision within 30 days of receiving either an offer on a property under the companies’ traditional short sale programs
or a completed Borrower Response Package (BRP) requesting short sale consideration, whether it’s through the federal
government’s Home Affordable Foreclosure Alternative (HAFA) program or a GSE program.
If more than 30 days are needed, servicers must
provide the borrower with weekly status updates and come to a decision no later than 60 days from the date the BRP or
offer was received.
According to the GSEs,
this 30-day add-on will provide some leeway for servicers who may need more time to obtain a broker price opinion (BPO) or
a private mortgage insurer’s approval for a short sale. All decisions must be made within 60 days.
In the event
a servicer makes a counteroffer, the borrower is expected to respond within five business days. The servicer must then respond
within 10 business days of receiving the borrower’s response.
The GSEs plan to use the new short sale timelines to evaluate servicer compliance with the Servicing Alignment
Edward DeMarco, acting director of the FHFA, says the GSEs new borrower communication and timeline requirements
for short sales “set minimum standards and provide clear expectations regarding these important foreclosure alternatives.”
must comply with the new minimum communication time frames for all short sale evaluations conducted on or after June 15,
2012, although servicers are encouraged to begin implementing the new requirements sooner.
“I applaud Fannie and Freddie for finally
coming out with real guidance with real world timelines for their servicers,” commented Anthony Lamacchia, broker/owner
of McGeough Lamacchia Realty Inc., which specializes in short sales. “There is no
question that this will help short sales and the market as a whole.”
Last year Freddie Mac completed 45,623 short sales,
a 140 percent increase since 2009. Fannie Mae’s short sale completions shot up by 101 percent over the same period,
totaling around 79,800 in 2011.