Homebuyers have come to terms with the current reality of 7% mortgage rates, but now they are experiencing a familiar sense of competitiveness in the real estate market across various regions in the United States. At the start of this year, buyers clung to the optimism that mortgage rates would decrease again, but that hope was not fulfilled. As a result, real estate agents like Aaron Lanning, a Century 21 agent located in Menifee, a city in Riverside County, California, witnessed a decline in business.
Reflecting on February and March, Lanning expressed, "Business had completely vanished." However, unexpectedly, at the end of March and in April, the real estate market regained its momentum as buyers embraced the reality of higher interest rates and proceeded to purchase homes.
Yet, amidst their perseverance in the market, buyers are now faced with a multitude of challenges. Apart from grappling with the effects of the pandemic-era property market, they must navigate through higher mortgage rates. The landscape is further complicated by all-cash offers, intense bidding wars, and the waiving of contingencies such as home inspections and appraisals.
Scott, in a recent episode of Barron's Live, informed MarketWatch, "We are witnessing a significant surge in competition." He elaborated on the situation, explaining that the competition stems from the rapidly diminishing inventory, and it's not just limited to homebuyers. Investors are also vying for properties within the same market. Scott, who specializes in multifamily properties, emphasized the challenging landscape created by this increased competition.
According to the report, homebuyers in various markets are facing the consequences of a reduced inventory, leading to intensified competition. Despite a decline in buyer demand due to higher mortgage rates, this competition has prevented a significant drop in home prices. Redfin, a real estate company, revealed that nearly half of the offers written by their agents in May encountered at least one competing bid.
Rafael Corrales, a real estate agent from Redfin, shared with MarketWatch that he is witnessing a consistent influx of buyers from out-of-state locations such as New York, New Jersey, and California in Miami. Additionally, he mentioned that foreign buyers from regions as distant as the Middle East and Asia are also actively participating in the market.
He stated, "We continue to observe rising home prices." However, he emphasized that the real issue at hand is the glaring lack of available inventory. This, coupled with elevated mortgage rates, presents a highly challenging market environment for prospective buyers.
In Miami, Corrales identifies the highest level of competition in neighborhoods like Coral Gables, Coconut Grove, and other affluent areas. Renovated and updated homes in these locations tend to sell swiftly, often within a short period. The intense competition in the Miami real estate market has left buyers feeling frustrated, particularly when it comes to single-family homes in desirable areas where multiple offers are commonplace. Additionally, the prevalence of cash buyers in the current market, due to high mortgage rates, adds to the challenges faced by first-time buyers.
Corrales advises prospective buyers to enhance their competitiveness by ensuring their financing is well-prepared and being ready to offer larger earnest money deposits, demonstrating their seriousness about the purchase. He emphasizes that having more "skin in the game" improves the chances of having offers accepted. Earnest money refers to the funds provided by the buyer as a deposit before closing to signify their commitment to the purchase.
Corrales suggests revisiting the strategies employed in 2021 and 2022, such as being more flexible with contingencies that may need to be waived, in order to make offers as competitive and aggressive as possible.
Meanwhile, in Riverside, Lanning shares that if a house is priced at market value, it is almost guaranteed to receive a minimum of two offers. While he recently sold seven homes in a month, with 22 people attending the last open house, he acknowledges that the current level of activity is not as intense as during the peak of the pandemic. In July 2021, he had an open house with 96 visitors in a single day. Typically, during the initial COVID years, his open houses attracted 30 to 40 visitors, but the numbers have currently decreased to around 15 to 20 visitors.
Lanning shared an anecdote about a client in Los Angeles who was planning to relocate to Fontana, another city in California. Surprisingly, this client had to visit homes eight or nine times before finding a suitable option. Typically, most buyers only need to make four or five visits. Unfortunately, this client consistently lost out on potential purchases due to being outbid by competing offers or facing issues with the appraisal process.
Lanning described the current market as predominantly favoring sellers. He noted that the low interest rates have caused many homeowners to become landlords instead of selling their properties. They are reluctant to part with homes that have mortgages with interest rates as low as 3.5%. This shift towards renting out properties has created challenges for buyers like Lanning and affected their prospects in the market.
