Stunned Home Buyers Find the Bidding Wars Are Back

By NICK TIMIRAOS
Wall Street Journal


A new development is catching home buyers off guard as the spring sales season gets under way: Bidding wars are back.

From 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.

"We very 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 of supply.

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.

Rates are "so low that we can afford a house that was out of our price range before," said Aarthi Srinivasan, who is looking with her husband for a home around Palo Alto, Calif., one of the country's hottest real-estate markets.

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 the market.

"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

Washington home prices rise 6 percent in February

By Sara Kehaulani Goo
The Washington Post

A 'sale' sign is seen outside a house in Alexandria, Virginia in this July 22, 2010 file photo. (MOLLY RILEY - REUTERS)

Home prices in the Washington area rose 6 percent to $317,900 in February, according to a report issued Monday showing encouraging signs that the local housing market is improving.

It’s unclear whether the unseasonably warm weather has anything to do with it but the report showed price increases in all segments of the market. The median sale prices of townhomes, condominiums and co-ops, and single-family homes rose 9.5 percent, 6.8 percent, and 2.8 percent, respectively, in February compared to the same month in 2011.

More encouraging, the number of foreclosure sales plunged nearly 42 percent in February, compared to a year ago. And the percentage of homes for sale that are foreclosures has dropped to 3 percent of the market — the lowest since March 2008. (That compares to last year, when one in 10 homes for sale in the area was a foreclosure.)

“The trends are looking up,” said Corey Hart, of RealEstate Business Intelligence, a division of the region’s multiple listings service, which issues the monthly report. “If supply stays low, there’s nothing in most recent numbers pointing to anything but positives.”

As the housing market has struggled, few sellers have put their home up for sale unless they really needed to. And as a result, the inventory of homes for sale remains at a low not seen since August 2005.

But Hart said that could also mean continued pressure on prices to move them higher. There currently is 2.9 months of supply of homes for sale, which is technically a seller’s market, so long as there are enough buyers interested. While sales activity increased in February with a 1.9 percent rise in contracts compared to a year ago, many potential homeowners have been unable to buy because of stricter lending standards and concern about resale value.

“Should this trend continue where there’s a shortage of inventory, that should have a positive impact on pricing,” Hart said.

Of course, some economists worry about the so-called “shadow inventory” of foreclosed homes that have not yet hit the market, as the states attorneys general worked out a settlement with the five largest banks over foreclosure fraud and robo-signing. But local real estate experts say they don’t expect a new, sizable glut of foreclosures to hit the market suddenly in the Washington area.

2011 Washington DC Housing Report

Market Summary

The 2011 Washington, DC residential real estate market withstood uncertainty in the financial world, rigid credit guidelines, threats to the mortgage interest tax deduction and inventories of single-family homes, condominiums and cooperatives were at their lowest levels in six years. The end result was a 2% decline in sales from 2010, but with only 3.36 month supply of inventory at the end of 2011(compared to 6.2 months nationally) the DC real estate market remained one of the strongest in the country. Average and median prices were on the rise in 2011 (led by strong single-family sales) and with a healthy local and regional economy the forecast is for continued growth in 2012 as we continue to struggle with a lack of inventory.

The main obstacle to a more robust market in 2012 continues to be found in the mortgage industry. Tighter credit guidelines and higher down payment requirements are keeping many willing buyers on the sidelines. On a home seller’s perspective, many who purchased homes in and around 2005 still find themselves underwater (despite rising prices on the single-family side) and unable to sell without taking a loss. These obstacles are having the effect of keeping housing demand in check despite similar conditions during the boom of the mid-2000s (low rates and low inventory), which ironically is a positive effect for the market.

Single Family

Sales of single-family homes in 2011 were down 3 % from 2010, and 31% off the market high set in 2004, ending a two-year streak of year-over-year gains.  The previous two years had seen end-of-year gains of 19% and 11% respectively. In 2011, the largest gains occurred in the upper brackets, with homes over $1.5 million up 15% over 2010. Sales of homes priced between $600,000 and $700,000 were up 13% and those priced from $800,000 to $900,000 up by 11%.

This slight decline in sales after two years of positive movement is due almost entirely to the lack of inventory in the market. At the end of the December there were only 825 single-family homes available in the District of Columbia in the Metropolitan Regional Information System (MRIS), a 31% decline from the same point in 2010 and the lowest number of available homes since August of 2005.

The effective inventory of 2.93 months at the end of December was typical of what was seen throughout the year. There was an average of 3.1 months of single-family inventory in 2010 without any month of the year exceeding four months of available inventory.  At the end of the year, homes priced from $600,000 to $700,000 had an even lower effective inventory of 1.14 months, and homes priced between $800,000 and $1 million stood at 1.48 months.

The demand for homes combined with the low inventory pushed single-family prices up in 2010, with average prices gaining 5% and median prices gaining 7% over 2010. This was the second consecutive year of price appreciation in this market after reaching the bottom in 2009. Note that despite the gains of the last two years, average prices are still 14% off the high average price point and 15% off the median high, both reached in 2007.

Condominiums and Cooperatives

Sales of condominiums and cooperatives remained virtually even from 2010 to 2011, with only a 0.4% decline. 2011 totals were off 6% from 2009 and off 36% from the high point set in 2005. For 2011, units priced under $150,000 were up by 43% over 2010, while units between $900,000 and $1 million were up 25%. The upper end of the condo/co-op market fared the worst in 2011, with sales of units priced over $1 million down 18% from 2010.

The inventory of available units at the end of December was 26% lower than a year ago and, like DC single-family homes, reached the lowest point seen in over six years. There was a noticeable decline in more affordable units in 2011 with 44% less available inventory under $200,000 by the end of the year.

At the end of December there was 4.04 months of available condo/co-op inventory, higher than the 2.93 months on the single-family side, but still technically a seller’s market. But with Urban Turf reporting 42 new condo projects in the pipeline for the upcoming year in the District, the market should change substantially by the end of 2012 with the strength and resilience of condo demand put to the test.

Average and median prices of condominium and cooperative units each fell 2% from 2010 totals, but are only 3% off the top of the market reached in 2005. With new condo inventory typically at higher price points, it would not be surprising to see prices start to edge up rapidly in the second half of 2012 as these new units start to go to settlement.

Prepared by Fred Kendrick, TTR Sotheby’s International Realty (202-333-1212)
Data from the Greater Capitol Area Association of Realtors (GCAAR)  and RealEstate Business Intelligence (RBI)

South of M Street – Market Update & Inside Scoop!

Watch on your mobile device >>

1080 Wisconsin Avenue NW – Georgetown Park Residences 
Tilton Bernstein Management
Key features:
• 100 units
• Four active one-bedroom units priced $375,000 - $509,000 – Two are short sales
• History of assessments
• Front desk, pool, parking (deeded & rental), secure building, above mall, higher fees
• Perfect M St. & Wisconsin Ave. location
Scoop:  Great staff & board, keep an eye on increasing fees and/or moving forward assessments.

3225 Grace Street NW – Canal House  
Tilton Bernstein Management
Key features:
• 30 units, many duplex and/or loft properties
• Sister building to Georgetown Park Residences
• Boutique private garage
• Two units are currently under contract, one of which is my listing. Unit 107 is for sale - $489,000.
Scoop: Recent large point re-tuck brick façade assessment; project now completed, building looks great.

Papermill Court NW  
Zalco Management
Key features:
• 101 units
• Low fees
• Strong association
• Four sales this year - I just listed and sold three of the four properties in the past 4 months…selling in 6, 22, 12 days respectively. Most units convey with deeded parking. There is a community pool, no plans for special assessments.
Scoop: FHA approved town-home style condominiums. When priced & presented well, the properties tend to sell quickly and for a higher price per foot than other similar buildings/associations -- solid all the way around.

3299 K Street NW – Papermill on the Potomac 
Bernstein Companies Management
Key features:
• 30 units
• Low fees
• 3 Sales in the building this year
• Directly in front of the new waterfront park
• I just settled unit 302 last week. 1 bed/bath, 800sqft., w/parking $455,000
Scoop: Although the residential section dates back to the 80’s it does not feel like it. The building appears much more like new construction. Low fees & on-site deeded parking. Select upper level units have panoramic views that are second to none.

1015 33rd Street NW – Flourmill 
Tilton Bernstein Management
Key features:
• 52 units
• Canal front building
• No units convey with deeded parking -Discounted rental parking is available on-site.
• Five Flourmill properties sold in 2011 - I was the listing or buyer's agent for each transaction.
Scoop: The building has an extensive brick point re-tuck project coming near-term. This will definitely dig into their cash reserves.  In addition, increased fees and assessments will likely be in play. On the plus side, the building will be a stunner when completed – nestled directly in between the C&O Canal and Potomac River, the location is tough to beat.  The Flourmill sits 50 yards away from 3303 Water Street at $1,000+ a foot. Unit views vary significantly throughout the building.

1077 30th Street NW – James Place 
Zalco Management
• 78 units
• Front desk
• Garage parking
Scoop: Great building in need of some basic updating. Good news, they have plans in place to do just that. Recently I met with the board president to provide feedback on their architect renderings/plans. I definitely like what I see; furthermore the association should be in a position to do the extensive renovation with limited financial impact to the current owners. In my opinion, this will dramatically change the building. There is nothing being offered for sale at the moment. With that said, I’ve got three clients in the building with near-term plans to sell – a one-bedroom, a two-bedroom, and another very large two-bedroom property.

Quick & general notes on South of M St. Real Estate:

Newer game-changing additions to the area include: House of Sweden, 3303 Water Street, Ritz-Carlton, AMC movie theatre and the Georgetown Waterfront Park. Simply put, the area has been transformed over the past ten years. Area inventory remains VERY low. Some national banks have been hesitant to lend due to the area’s commercial component. Almost all lenders are now requiring a supplemental flood insurance policy. I guess when you live in a fun, vibrant & waterfront area…it comes with the territory!

Thank you for checking out today’s video blog post. If you know someone that would appreciate this site or information, consider forwarding the email or link. Also, for those on Facebook, a “like” would be greatly appreciated! As always, if you need assistance with anything related to real estate, just let me know.

Why Buying Now Holds the Secret to Years of Lasting Happiness in Your Life

Watch on your mobile device >>

Almost anyone can buy a home – and these days, most everyone wants to, given the historically low mortgage rates and the very low home prices.  But buying in a way that proves successful on a long-term basis, however, is what differentiates those who end up with lasting happiness and prosperity throughout their life from those who just own a big house.  Since doing anything for the right reasons is a far better approach, it’s a valuable lesson to understand what your motivation should be for buying a home.  In this article, we outline the difference between buying for the sake of having material possession versus buying to enjoy life and provide for your family.

Whether you are a first-time homebuyer considering a new home, someone who has suffered a short sale but are ready to rebuild and become a homeowner again, or an investor – this message applies to you.

Why Buy Now?

Click on this link to see how interest rates have fared during the last several months, few years, a decade and longer.  The further back you go, the more astounding today’s rates seem.  For many of us in the real estate industry the current rates that hover around the 3s and 4s (percentage points) are unprecedented!  

The Secret to Lasting Home Buying Success
But here is the big secret to lasting health, happiness and yes, even wealth:  if you buy your home for the right reason, you will be able to live happier in it.  Buying your home based on whether or not you can afford the monthly payments is a big mistake.  Buying your home with the intent to be able to pay it off as soon as possible so that you can live free of a mortgage payment – THAT is success!  Imagine what you can do with all that extra cash each and every month.  You can treat your family on vacations, buy a new car every few years, pay for the kids’ college and live guilt-free as you build your wealth while at the same time living happily, in a paid-off home.  

Can Anyone Buy a Home Using This Principal?

Yes!  As long as you buy a home that is within the realm of your capability to manage it, then you can buy a house.  I do not suggest investing in a property that is bigger than you need or better than you need, just so that you can keep up with the Joneses.  By choosing a property that you can realistically pay off within 20 years instead of the 30-year term that you will most likely get for your mortgage, you are doing yourself and your family a huge favor.  This is a concept that nationally syndicated radio talk show host and financial expertDave Ramsey highly advocates.  In a bad economy or even worse economic conditions than today’s, the Joneses would find themselves looking at a short sale or foreclosure while you and your family would count on securely living in a mostly or fully paid off home.

Why Is This Principal So Spectacular?

As simple and rudimentary as it is, buying a home and going into debt within your means is a concept that is becoming more and more obsolete.  Where here we are talking about choosing a home that is reasonable and not overboard, most people believe that buying a home based solely on the monthly payment amount and the seeming affordability of that payment, without regard for anything but how big the house is.  Though very basic and nothing new, the simple idea that one should buy within their means with the full intent to pay off the mortgage as soon as possible is one that will open up many new doors in the future.

The Single Best Way to Shorten Your Loan Term

Even if you do not earn a very large paycheck, the key to paying off your mortgage sooner and to shave off years (not to mention tens of thousands of dollars) from the term is to chip away in small increments, month after month after month.  By making extra payments, no matter what amount you can handle, you will be tackling your principal impacting the amount you owe in a significant way.  To demonstrate just how significant the time and monetary savings are by doing this, input your estimated or existing mortgage payment information into this calculator that factors extra payments and shows the entire repayment schedule.  

~

You cannot afford to miss this opportunity to free yourself and your family from what could be years of mortgage captivity if you get locked into future, much higher rates or worse – unable to secure a mortgage on a home.  For more information or a customized consultation, visit your Realtor.

How to Make a Buyer WANT Your House! Staging your house, before it’s too late and you lose the sale

Watch on your mobile device >>

If you’ve shopped for a home, chances are you’ve come across one that you really wish you hadn’t visited in the first place. True, houses for sale ought to have a certain “lived in” quality to them, because they are to be lived in after all, but the art of tactfully balancing just the right amount of homeliness with neutrality is not so simple. You need to know what you’re doing when you prepare to set up your house and show it to potential buyers. We’ve put together some great tips for home-sellers so you can get the same results you’d get by hiring a professional staging company.

Fix Up the Place

One of the biggest mistakes homeowners make before putting their house up for sale is to neglect areas in the house that need attention. Folks, don’t leave that faulty step unrepaired, only for a potential buyer to step on, slide off of or worse, get injured on – FIX IT! You might think potential buyers won’t notice but they are walking around on your premises like hawks, noticing each little detail. The good news is that they are noticing the first-rate stuff too, so as long as you have the home’s amenities in order and other major areas in tip-top condition, you should be in good shape. Here’s how:

Get Rid of the Clutter

If you want to successfully sell your house, you need to get those potential buyers to imagine they already live there. Too much clutter, hobby-oriented items or personal possessions that most people may not be able to identify with, can easily get in the way of that vision. Organize things in stylish storage bins or better yet, have a garage sale before the open house and get rid of unwanted stuff. You have to move soon anyway, why not kill two birds with one stone? A clean and organized home will seem like a clean slate to buyers, who can then see themselves moving in without much hassle and settle in effortlessly.

Stay Neutral

Skip the tie and dye sofa cushions, shaggy 70s rug and don’t light incense on the day of your open house. While you’re at it, don’t fill the space with gender-specific things either. Buyers should walk into a neutral ground – literally. Light to medium colors, preferably in beige tones, are the simplest way to pull buyers’ attention away from other personal aspects of your home that they may not be able to identify with. Beige goes with almost anything so if someone considering purchasing your home can imagine their things in the space, then you’ve just crossed one of the most major hurdles in home-selling – making a buyer identify with the home.

Make It a Modern, Inviting Environment

If you don’t already have them, invest in a few modern decorative accessories to improve the look of your space while lending an air of style and taste and making it more enticing. It doesn’t have to take much but depending on how you set it up, you can enhance a given space with a few simple additions and deletions. Take your over-crowded study and rearrange the bookshelf to display only a few strategic but essential books, like a leather-bound set of encyclopedia or some literature classics. In the same way, leave a few children’s toys in a child’s room but be sure to display them tastefully.

Put a Few Finishing Touches in Place

The idea is that you want your house to be sold – and you probably want it sold fast. If you are careful to respect the people who are visiting your space to decide whether it’s the right one for them, then you are doing something that a lot of homeowners neglect to consider. Taking down a piece of controversial artwork that may make a potential purchaser uncomfortable could be the one bargaining chip that could make or break the sale. Arranging for all those who currently live in the home to be away during the open house and while showing the house being dressed in a way to present a good impression are also great ways to tip the scales in the right direction.

It’s very simple. You need to make the potential buyer feel right at home from the get-go. If from the moment they walk in and smell cinnamon cookies baking makes them wish this was already home – then you’re already two steps ahead and can call the open house a success! Of course, a signature on the dotted line is where the real success lies and as long as the buyer feels at home, chances are that if everything else lines up – the sale is a winner!

Take advantage of historic interest rates but choose your lender carefully.

Watch on your mobile device >>

In the past, most contract purchasers would simply request rates and fees from a couple of lenders. From there, determine the “apples to apples” bottom line expense and select the least expensive route...and just like that, 30 days later the funds are waiting at the settlement table. Unless you are a 100% perfect candidate, that is no longer how it works in today's lending environment.

Are you self-employed? Are you buying a condo? Is your income 1099? Is your credit a bit shy of perfect? Has your income varied significantly over recent years? Buying new construction? If the answer is yes to one or more of these questions then it’s even more important to dig-in and better understand your lending options. To be clear, it does not mean you can’t get a loan. In fact, there are some very attractive loan opportunities in the marketplace today. It just might take a little more due diligence than if you were a straight-forward W-2 employee with perfect income, assets & credit.

National lenders, local lenders, portfolio loans, private banking…each will have their own set of loan products (conforming, non-conforming, jumbo, FHA, ARM’s etc.) and underwriting guidelines. Furthermore, these products & guidelines can and do change often. One lender can easily reject a purchaser while the next is prepared to settle without delay. The key is to find the proper match, competitive rates & fees, and most importantly…a lender that will be there successfully at the settlement table.

If you know someone who would appreciate this site, please forward it on. If you have questions about lending or need a good referral, just let me know. All the best, Michael.