Burned by bidding wars, some buyers back off

The first house was in Midvale, Utah — a three-bedroom, just over 2,100 square feet, listed for $479,000. Rob Ettaro and his girlfriend, Kaliana Veros, who had moved from western New York to Salt Lake City, drawn by career opportunities and the stunning scenery of the Wasatch Range, decided to make an offer.

This was back in the wintertime, when the young couple had a modest wish list that included room for family to visit. Their hearts still raced at the idea of being homeowners. Ettaro and Veros offered $6,000 over the asking price. The house sold for $60,000 over.

Wised up, on the next house they offered $60,000 over list and waived the inspection. There were 54 offers. They were not even close.

On it went through the spring, their mounting frustration told in the numbers: 70 house tours; 14 offers made; not one accepted.

“Here’s another one,” said Ettaro, reading from the detailed spreadsheet he keeps. “We did $35,000 over asking, and they ghosted us. No repairs. As-is. They just never answered us.”

Finally, after five months, Ettaro, 30, and Veros, 26, had had enough; they stopped looking. “Just the mental energy we were expending going to see these houses and trying to envision ourselves in them and it not working out again and again and again,” Veros said.

Ettaro added, “We’re literally giving them everything we can, and that’s still not good enough. We were feeling really burned out.”

Bad time to buy?

Mortgage rates may be historically low, but so is homebuyer morale these days. Last month, the Fannie Mae Home Purchase Sentiment Index showed that 64% of people believe now is a bad time to buy, up from 56% the month prior. Stratospheric prices, brutal bidding wars and record-low inventory have conspired to make many prospective homebuyers frustrated and fatigued.

And some are calling off their search, for reasons that range from an inability to compete financially, to an unwillingness to waive contingencies like an inspection, to a belief the market will cool in time. Home sales have dropped for four months straight, even as prices have hit record highs.

Mark Boyland, a Realtor with Keller Williams in Bedford, New York, is noticing “some buyer fatigue out there,” he said. “If you’ve lost out on four or five multiple offer situations, you say, ‘Maybe we should wait until things cool off.’ ”

A real estate market like the current one may be a boon to sellers, but it is emotionally exhausting for would-be buyers. “Every time you’re putting an offer on a house, you’ve effectively fallen in love,” Boyland said. “And now you’re getting your heart broken — over and over and over again.”

Thomas Brown is co-founder of the Agency Texas, a brokerage that serves San Antonio, Houston and the Austin metro area, where home prices were up 43.9% year over year in April, the biggest jump among the country’s largest 85 metros, according to a report by Redfin. Not surprisingly, “there’s a lot of people pausing their searches right now,” Brown said. “The market is starting to stabilize. Not normalize. Stabilize.”

That stabilization is happening, in Brown’s view, because “there’s just going to be less buyers.” Austin’s rental market is heating up for the same reason. “People are going, ‘I can’t buy the house. I’m going to rent for a year.’”

Greg and Daphne Decoteau are renting in Boise, Idaho, though not by choice. In 2019, the couple, empty nesters in their 60s, moved from California’s Napa Valley to Boise to live out their retirement years, drawn by the lower cost of living and active lifestyle. Acting prudently, they visited the area in all four seasons before moving and rented before committing to a home purchase.

Then the pandemic hit, pulling their attention away from house hunting. By the time the Decoteaus started looking again last December, the local market, already hot, had taken off like a rocket. They waited and watched, “expecting some sanity to creep in,” as Greg Decoteau put it.

Instead, he said, “it just got worse and worse and worse. Now it is at the point of absurdity. A $400,000 house a year ago is selling for $650,000.”

A retired technology hardware salesman, Greg Decoteau had a real estate license in college, and his wife is a former broker. They consider themselves financially astute. They have bought and sold several homes over the course of their marriage. Finding themselves in limbo, they are now reduced to living in a 1,000-square-foot rental with most of their belongings in storage. They, too, have stopped looking.

“Frankly, we don’t have the resources to play that game,” Greg Decoteau said. “We’re past our prime earning years. It’s less a question of appetite than our financial reality. I wake up every morning and kick myself for not having seen this coming.”

But how could anyone have predicted the irrationality of this housing market? Candice Smith, a Redfin agent who covers Westchester and Rockland counties, north of New York City, is still working with buyers who started looking in February. “This market, you’re going to be in it for the long haul,” Smith said. “The average person would be tired if you put in 15, 20 offers and are getting outbid by the competition.”

Even under normal conditions, the buyer-broker relationship has aspects of a therapy session, with buyers projecting their hopes and dreams on a house and agents trying to translate and temper those desires. These feelings only become heightened when large sums of money are involved. But brokers are doing extra hand-holding these days as buyers get their hopes crushed and lose faith.

“After every loss, you have to keep encouraging them,” Smith said. “I have a buyer right now who said they’re going to take a break. I advised them to take the emotion out of it. What I do is restrategize. I’m walking them back through the process of why they lost, talking about the appraisal strategy.”

Jennifer Louis, an agent in Boise who has been working with the Decoteaus, said that she makes sure her buyers understand what it takes to find a house in a “Hunger Games”-like environment. And what does it take?

“You have to make a decision literally sometimes in an hour,” Louis said. “Sometimes not even. There’s a line out the door. You have 15 minutes to see the house and make a decision.

“I need people who are reactive and available. I’ve had others where they don’t get back to me for a day or two. Well, it’s gone. You have to take time off work. You have to fly into town or do whatever it takes.”

House hunt is work

For any buyer who wants to seriously compete, the house hunt has become an all-consuming second job. That level of engagement, often without reward, is also leading to buyer burnout.

Ettaro and Veros were seeing between five and 10 houses a week, spending hours scanning listings online and living on takeout food as they drove to open houses in farther-out areas they hoped to better afford. Instead of hiking or mountain biking on weekends, activities they both love to do, they were touring houses they were all but assured not to get, and arguing.

“We were having arguments over whether, ‘Hey, do you want to look at five houses today?’” Ettaro said.

“We came to the conclusion this is clearly affecting us. We need to step back and relax for a minute and see how things go,” Veros said.

Faced with such fierce competition, buyers tend to fall into two camps: those who become defiant and determined to land a house, and those, like Nick Sauro, who would rather check out of the mania.

Sauro, 41, and his wife, Ilone, 39, own a starter home in New Rochelle, New York, where they live with their 18-month-old twin boys, 8-year-old daughter and Ilone Sauro’s mother. They need more space, desperately. They have a budget of $750,000 to upgrade. But when they started looking this spring, “there was just nothing out there,” Nick Sauro said.

“Every house we liked was this crazy bidding war,” he said. “Then these other houses just aren’t that great. They need a lot of work. You walk out. You’re kind of disgusted. We can’t move to a fixer-upper. And that’s all that’s out there.”

As summer came, the Sauros decided to enjoy the weather. Their current house may be cramped, but they own it, and buying it eight years ago was relatively stress-free. “If you’ve been through the process,” Nick Sauro said, “why would you partake in this craziness?”

For first-time buyers, however, it can feel like they may never get beyond the frenzy and become homeowners. And in markets where prices have increased by 25% or more in a matter of months, a sense of hopelessness is not an overreaction to losing a few bidding wars.

Bubble Watch tracks housing risks. Read it here!

“For the young ones, it’s heartbreaking, because if they don’t already have a house or a family that’s going to finance them, it’s getting almost impossible to find them a home,” said Louis, the agent in Boise.

Ettaro and Veros have made the decision to continue renting in Salt Lake City, wait it out and hope they can eventually buy. “Maybe it will level out,” Ettaro said. “Maybe we won’t have to go $70,000 over asking and get beat out by 50 other offers.”

The Decoteaus, too, at a different stage in life but facing the same dilemma, are sitting on the sidelines, feeling not so much burned out as plain burned.

“We’re sitting here trying to figure out what the hell we’re going to do,” Greg Decoteau said. “We’re not sure we’re going to be able to stay here. We’re just about priced out.”

On their list of places to retire to, the Decoteaus also included Asheville, North Carolina; Medford, Oregon; and Colorado Springs, Colorado. Perhaps one of those communities is still affordable?

“My suspicion is, those places are sucked up in this insanity also,” Greg Decoteau said. “Our other option is to stay in this little apartment until we go crazy.”

 

Why ‘unprecedented spike’ in evictions is expected as federal moratorium expires

By Noah Buhayar | Bloomberg

A federal ban on evictions is set to expire at the end of July, and this time it’s unlikely to be extended, putting millions of renters at risk.

The moratorium has been in place through much of the pandemic, but it’s part of a wave of emergency programs ending even as the Delta variant fuels rising COVID-19 cases in the U.S.

Related: COVID deaths soar when eviction moratoriums end, UCLA study finds

While some states, including California and New York, have their own eviction bans, the expiration of the Centers for Disease Control and Prevention’s moratorium has housing advocates worried about a surge in landlords forcing out tenants who have fallen behind on rent.

Congress has allocated nearly $47 billion in assistance but so far states and local jurisdictions have been slow to distribute the funds.

To understand what may happen next, Bloomberg talked to housing expert Ingrid Gould Ellen, a New York University professor who has studied federally funded emergency rental assistance programs during the pandemic.

Q: We’ve been talking about an eviction crisis since the start of the pandemic, but it hasn’t happened yet. Do you think we’re poised to see one soon? Why or why not?

A: It hasn’t happened yet because of moratoriums, federal assistance and uncertainty among landlords about finding new tenants. But there are still a lot of renters behind on rent, and some of them are far behind on rent and at risk of losing their homes, especially if they’ve reached the end of their lease. The Census Pulse Survey suggests that 16% of renters owe back rent. This is down from a peak of over 20% in January, but a lot of renters are still facing hardships, particularly renters of color and renters with children. Nearly one in four Black renters report being behind on rent.

A key factor will be whether the hundreds of state and local emergency rental assistance programs around the country can get these funds out the door quickly enough. The hardest-to-reach renters are also the most vulnerable to eviction, and that group is large enough to cause an unprecedented spike in eviction filings, warrants and, ultimately, homelessness if we don’t remain focused on getting them and their landlords the assistance Congress has made available.

Q: When the CDC eviction moratorium expires, where do you expect evictions to climb the most?

A: I would expect evictions to rise the most in places where housing costs are high or climbing, demand is strong and tenant protections are low. That probably means the Sunbelt and the southeastern U.S., though there are likely to be widespread increases.

Q: The economy is bouncing back. Who needs rental assistance in the U.S. now?

A: The majority of the jobs lost have been in industries that pay low average wages, and disproportionately employ renters, and the Delta variant spike poses a renewed threat. Our research on rent arrears in New York City suggests the greatest need is concentrated among a small group of households, many of whom were already struggling before Covid hit. As with so many issues, there are troubling racial disparities. Black and Hispanic households are more likely to have lost employment and therefore to be behind on rent.

Q: How important is it to landlords that this money get disbursed?

A: It’s essential, especially for mom-and-pop landlords who own a small number of properties. For small landlords, the funds are likely to be critical for preventing default, property tax arrears, forced sales, or cuts in repairs and maintenance.

Q: How quickly has the government been able to distribute the money and will the $47 billion that Congress allocated be enough?

A: Estimates of need suggest the $47 billion will likely be sufficient if they can get it out the door quickly enough. But again, the slow pace has been worrisome. All levels of government need to work together to get the money out quickly and to strongly encourage, or require where possible, landlords to apply for rental assistance before filing an eviction.

Q: Rents are soaring across the U.S. right now. How do you think that will impact the government’s effort to avoid an eviction crisis?

A: It will likely be more difficult to limit evictions in places with rising rents, as landlords will have a greater incentive to find new tenants willing to pay higher rents. Plus, rent increases will make it more difficult for renters who do lose their homes to find new places to live.

Editor’s note: This interview has been edited and condensed.

U.S. new-home sales unexpectedly fall to lowest since April 2020

By Olivia Rockeman | Bloomberg

Sales of new U.S. homes dropped unexpectedly in June to the lowest since April 2020, showing a further weakening in demand against a backdrop of elevated prices and tight supply.

Purchases of new single-family homes fell 6.6% to a 676,000 annualized pace following a downwardly revised 724,000 in May, government data showed Monday. The median estimate in a Bloomberg survey of economists called for a 796,000 rate.

Surging construction costs for everything from labor to transportation to lumber have held back homebuilding in recent months, contributing to skyrocketing prices while the supply of homes remains limited. Some of those supply-chain pressures may ease in the coming months, and lumber prices have retreated quickly from their recent peak.

Biden administration officials held a meeting with homebuilding industry representatives recently, with a goal of addressing the housing supply shortage and helping to ease pressures that spurred the surge in prices.

The Commerce Department’s report showed the median sales price of a new home rose 6.1% from a year earlier, to $361,800.

Housing inventory

The number of homes sold in June and awaiting the start of construction — a measure of backlogs — eased from a month earlier to 229,000, the report showed. The total number of homes sold with construction underway slipped to 289,000 in June.

There were 353,000 new homes for sale in June, the most since the end of 2008. At the same time, only 10% of those houses were already completed. More than 100,000 had not been started.

At the current sales pace, it would take 6.3 months to exhaust the supply of new homes, compared with 5.5 months in the prior month.

A separate report last week showed sales of previously-owned homes rose for the first time in five months in June as housing inventory improved slightly.

Digging deeper

  • Sales fell in three of four in U.S. regions. Purchases slumped about 28% in the Northeast, dropped 7.8% in the South and fell 5.1% in the West
  • New-home purchases account for about 10% of the market and are calculated when contracts are signed. They are considered a timelier barometer than purchases of previously-owned homes, which are calculated when contracts close
  • The new-homes data are volatile; the report showed 90% confidence that the change in sales ranged from a 23.1% decline to a 9.9% increase

3 more ways you can avoid rent increases

If you read my column last week, you learned two key ways to avoid a rental rate increase — know your owner and understand the value of your tenancy.

If the bottom of your birdcage lands the Real Estate section before you read it, here’s a brief recap.

Industrial lease rates have increased a whopping 134% over the past 10 years. Recall, our market for manufacturing and logistics space was awakening from the ether of the 2008-2010 financial reset – err, meltdown and there were bargains galore. Now with the classic increase in demand from pandemic-fueled buying and a pinched supply of available buildings, rates have skyrocketed!

You may be fortunate to rent from an owner who appreciates your worth as a tenant and wants to avoid a costly vacancy if you bolt. If this is your situation and you’re approaching a renewal, count yourself among the lucky. Conversely, if maximizing the monthly income is your landlord’s objective, you could face an increase of double what you’re currently paying.

But, there is hope. Keep in mind these three strategies to stem a spike in monthly payments.

Buy a building

Historically, buying property has been costlier than renting on a pure monthly outlay basis.

Meaning, if we stack a mortgage, allotment for property taxes, insurance and upkeep together, the total will be higher than most leases. Plus, you must come up with a sum to bridge the gap between what a bank will loan and your purchase price, some 10%-25%.

However, this is many times shortsighted when looking at a projection over the life of a company’s occupancy. You see, lease rates escalate over time, generally fixed at 3%-3.5% annually. And, when a term expires, the landlord will bump the number even higher to compensate for the market variance.

Currently, we’re seeing a huge boost in rental rates which eclipses that 3%-3.5% annual escalator. Some find it better to own, finance the buy with fixed debt, thus stabilizing payments and enjoying appreciation and the tax benefits that accrue.

A word of caution. If you enter the buying fray, be prepared. Structure your A-game with proof of a down payment, lender pre-qualification letter, and a well-reasoned story of your desire to buy.

Move to cheaper geography

Once, the Inland parts of SoCal were cheaper, newer and alternatives were plentiful.

If you’re a logistics provider and you look East, this affordability gap is quickly narrowing. However, there are still “deals” to be found. Don’t forget areas just outside the state borders such as Arizona and Nevada. You might even find a business climate that welcomes enterprises with goodies such as tax breaks, employment incentives and fewer regulations.

Do more with less

We toured an operation recently. Occupied was a big chunk of a larger address. Since they leased the space five years ago, several distribution centers had been added to their supply chain, thus lessening their need for the square footage they leased locally.

By trimming their premises by 40% a great building popped up which fit their requirement. Another client of ours took advantage of the relative softness in the office space market and peeled away that portion of the company. Eliminating the people component from their warehouse created several new buildings to consider.

Don’t forget: Your additional capacity might be found if you look up and maximize your stacking. Frequently, a group will believe they are out of space because their floor is consumed. Ignored is the two or three feet in height not used. With the advances of material handling equipment – you can literally use every inch if you narrow your aisles and pile your product high.

More on these later.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.

Bubble watch: Where’s homebuying hottest in California?

Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.

Buzz: There’s lots of heated house hunting going on in rural, more affordable parts of California. But it’s not a universal trend.

Source: I filled my trusty spreadsheet with California Association of Realtors data on June’s closed transactions of existing, single-family houses, making an educated guess at where the state’s homebuying was hottest.

The Trend

There’s no easy answer to where it’s hottest — especially in the pandemic era. My formula was to rank the 51 counties tracked by CAR using four factors: one-year change in median selling price, sales activity, listings-to-sales ratio (housing supply) and time on the market (selling speed).

Next, I compiled a collective ranking of these four benchmarks to see where homebuying is hottest — and in 2021’s crazy market, where it’s less hot. Now one month isn’t a trend, and keep in mind we’re comparing today’s buying binge with a coronavirus-iced economy of June 2020.

Still, the highest average rankings …

1. Siskiyou County: The top spot (which borders Oregon) had a $300,000 median in June; a 41% one-year price gain; 74% more sales; 57% smaller supply; and home spending 81% fewer days on market.

2. San Benito County: This NorCal community had a $794,690 median; 36% price gain; 45% sales increase; 47% supply dip; 84% fewer days on market.

3. Orange County: $1,138,000 median; 31% price gain; 62% sales increase; 57% supply dip; 65% fewer days on market.

3. Tuolumne County: It borders Yosemite and had a $413,820 median; 36% price gain; 48% sales increase; 46% supply dip; 68% fewer days on market.

Home Stretch newsletter follows SoCal housing! Subscribe here.

At the bottom we also find mostly Northern California locations, noting that “cool” these days is “sizzling” in a normal market …

51: Butte County: $438,000 median; 12% price gain; 3% sales increase; 10% supply dip; 57% fewer days on market.

50: Kings County: $295,000 median; 11% price gain; 14% sales increase; 29% supply dip; 38% fewer days on market.

49: Stanislaus County: $430,000 median; 21% price gain; 5% sales drop; 0% supply dip; 50% fewer days on market.

48: Sutter County: $395,000 median; 16% price gain; 7% sales drop; 41% supply hike; 63% fewer days on market.

The Dissection

Some hints of a north-south divide show up when you look at our bigger markets …

11: San Bernardino County:  $435,000 median; 34% price gain; 17% sales increase; 32% supply dip; 76% fewer days on market.

15: Los Angeles County: $796,120 median; 29% price gain; 42% sales increase; 40% supply dip; 53% fewer days on market.

17: Riverside County: $575,000 median; 28% price gain; 17% sales increase; 37% supply dip; 70% fewer days on market.

21: Alameda County: $1,300,000 median; 33% price gain; 45% sales increase; 32% supply dip; 38% fewer days on market.

25: San Francisco County: $1,950,000 median; 8% price gain; 87% sales increase; 52% supply dip; 37% fewer days on market.

29: Santa Clara County: $1,750,000 median; 27% price gain; 47% sales increase; 38% supply dip; 27% fewer days on market.

33: San Diego County: No. 33 —  $865,000 median; 28% price gain; 29% sales increase; 32% supply dip; 50% fewer days on market.

44: Sacramento County: No. 44 —  $525,000 median; 26% price gain; 13% sales increase; 26% supply dip; 40% fewer days on market.

And considering all the talk about inland migration, here’s a collective look at median results for the 15 California counties on the Pacific vs. the rest of the state. Homebuying in those pricier, ocean-close towns, at a minimum, have rebounded nicely …

Price: $862,500 coastal vs. $615,852 elsewhere.

Price gain: 29% coastal vs. 24% elsewhere.

Sales increase: 35% coastal vs. 20% elsewhere.

Supply drop: 45% coastal vs. 32% elsewhere.

Days on market decline: 50% coastal vs. 56% elsewhere.

How bubbly?

On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … FOUR BUBBLES!

Curious trends give us a dash of comfort.

Let me say, I’m taking a more hopeful view after seeing much of California’s wildest action is happening in less-populated counties. These markets were unlikely to easily absorb today’s wave of heated homebuying desires. Perhaps you could explain these booms as a passionate discovery of hidden gems.

Plus, surprising strength to the south and the coastline suggests that fears that some parts of California might be hit by a mass exodus — inland, or to other states — were exaggerated.

But when the Realtors’ statewide price benchmark jumps 31% in a year, you have to worry that something’s seriously out of whack.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com