Home market overheating? Low inventory, high bids on houses
Apr. 4—A sizzling housing market with far more interested buyers than sellers is spurring a bidding war on many homes.
"Inventory is lower and the demand is high. We're finding multiple offers on many properties, and they're going well above asking price, sometimes $10,000, $15,000, $20,000 above," said Jen True of True Real Estate.
Some fear that the higher prices will lead to problems.
"I can't predict the future, but the writing's on the wall. It's getting scary," said appraiser Jason Carlsten of JC Valuation Services Inc.
Carlsten said the higher bids are leading to homes that do not appraise high enough to allow the lenders to approve the loans.
"You're getting these properties listed and agents come up with the most likely sales price for that property. They've done their research. Then there's 15 people who bid it up," Carlsten said.
Lenders require that a home appraises for a certain percentage of the loan amount. Most lenders won't loan more than between 80% to 97% of the home's fair market value.
True and Carlsten said that when appraisals fall short, one of several things can happen. The potential buyer can try to get the seller to lower the price. The buyer can try to come up with more cash to put down on the house to make the loan work. Or the seller can put the home back on the market.
Carlsten said the pandemic compounded problems of a shortage of homes for sale and has created "hyper inflation" in the market.
He's concerned that could lead to issues down the road.
"People who paid inflated prices in recent years, what will they do in a few years when they want to refinance? They might be above list price."
While he has been busy recently, Carlsten said about 80% of the appraisal work he's doing is for people who are refinancing to take advantage of low interest rates.
"Appraisals for home sales is down because the inventory is so low. It's not for lack of buyers."
New listings low
As of the end of February, the national housing inventory tumbled by nearly 30% year over year to a record low of 1.03 million, according to National Association of Realtors data that goes back to 1982.
In south-central Minnesota new listings also have been down.
January and February saw 226 new home listings locally, compared to 241 for the same period last year, according to the Realtor Association of Southern Minnesota.
True said she's starting to see an uptick in listings. "Homes are starting to come on the market more, which is good. I have a few people waiting until after Easter to list."
While inventory is lower, home sales are up some in the region. There were 210 sales in January and February, up from 188 the same period last year.
In the Mankato region, sellers on average got 94% of their asking price in February.
While mortgage interest rates remain historically low, they have increased in recent weeks.
The 30-year mortgage interest rate jumped to 3.2% last week, up from 2.7% at the start of the year.
Seller's market
True said buyers are doing all they can to please sellers and close transactions, including waiving the traditional home inspection.
"It isn't something we recommend but we're seeing it more."
She said most price ranges are very strong, however homes at $800,000 and above are cooler.
"The $250,000 to $350,000 range is the hot market. And anything below that is very good."
The median home sale price in February locally was $189,000, up from $182,100 a year earlier.
True said sales in smaller communities in the region are good and properties on the water are in demand.
"Homes on the lakes are selling in a day or two. I just showed one that's not even on the market yet."
She said some sellers, such as those who are looking to downsize, are selling their homes and then renting temporarily while they look for a home rather than making their home's sale contingent on them first finding another house.
