Housing Shortage Leads to Intense Competition Among Homebuyers
Originally Published on Redfin by Tim Ellis
A majority of offers submitted by Redfin agents faced competition in January according to a survey of more than 500 Redfin agents across the nation. Competition is spiking hard and early in 2020 and agents are reporting a flood of buyers as home supply sits at its lowest point in seven years, leading to a severe housing shortage in many areas.
“Low mortgage rates have brought buyers back to the housing market, but a lack of listings means buyers are having to compete with one another to secure a sale and lock in a mortgage rate,” said Redfin chief economist Daryl Fairweather. “This competition pushes up prices, which means that even though buyers can get a good deal on a mortgage now they are often paying a higher sticker price.”
The San Francisco Bay Area had the highest rate of competition, with agents estimating that more than 90% of the time there were multiple offers on homes their clients were bidding on—despite the fact that the median home price there is still well above $1 million.
Of the 24 markets where we received a significant volume of responses from our agents, homebuyers in all but five faced competition more often than not. The area that seemed least prone to competition was Greenville, SC.
To get a better sense of how the market actually feels to homebuyers right now, we asked our agents to share their stories. They painted a picture of an intense market, with the fiercest competition in many years.
In the Bay Area, the most competitive market in January, buyers are going to extreme lengths to win a home. “After missing out on one home due to a bidding war, my clients were much more aggressive on their next offer,” said Redfin San Jose agent Jennifer Tollenaar. “In order to beat 24 other offers, they put 50% down, wrote a great letter to the sellers and removed all contingencies. This was on a home with a purchase price of over $1.7 million.”
In the LA area, another highly competitive area, some homes are sitting on the market for a while, but when a new listing appears that homebuyers want, they all seem to want it. “Not every home sells quickly and with multiple offers, but when my buyers are interested in submitting an offer it is almost always a home that has multiple offers,” said Redfin Irvine agent Liz Flesner. To win a home in such situations Flesner says buyers are coming in way above the list price, with a large down payment, and often removing all their appraisal and loan contingencies.
“In Phoenix, inventory is so low right now that one of my clients has run into bidding wars with more than 10 offers for three weekends in a row,” said Arizona Redfin agent Thomas Wiederstein. “Offering well above listing price isn’t enough in today’s market. You have to do that, plus waive contingencies just to have your offer considered by sellers.”
Perhaps the most shocking story of competition came from Redfin Portland agent Meme Loggins, whose clients recently made an offer that was $8,000 above the home’s $275,000 list price. “Ours was the second offer the sellers had received. Two days later we were competing with 30 other offers. This bidding frenzy took place on a mobile home that was pretty far out of the metro area and not even in great condition. It’s getting crazy out there!”
It’s not just the West Coast that’s seeing competition explode. In Philadelphia, even homes that have been on the market for months are suddenly attracting bidding wars. “One home I recently helped my clients win had been on the market since June and hadn’t been reduced in price since November,” said Redfin Philadelphia agent Brenda Beiser. “When we looked at it in mid-January the agent told me there had been six other appointments the day before. By the time our offer went in that evening they had received two other offers.”
A number of other Redfin agents shared similar stories of experiencing multiple offers in January on homes that had been on the market for months. This recurring theme is indicative of just how many buyers have suddenly come into the market, but without a corresponding increase in listings of homes for sale. Unless we see a lot more inventory hit the market in February and March, this spring could be very difficult for homebuyers as they experience the mother of all bidding wars in most markets across the country.
If you’re a hopeful homebuyer in a city where bidding wars are the new normal, here are some tips for how to win a bidding war.