Mistakes Buyers Make in Bidding Wars

Multiple offers on a home sale are still common, and buyers may get caught up in the competition and make some mistakes in the process.

One common mistake: buyers who are willing to empty their bank account trying to win.

“I’ve had buyers who want to bid all the money in their budget in order to win a bidding war,” Lily Lei, a real estate professional with RSVP Real Estate, Powered by ERA, in Seattle, told realtor.com®. “I counsel them away from it. The house may require tens of thousands of dollars worth of repairs immediately, like a new roof or new plumbing. They would have no money left to cover these essential repairs.”

The bank’s appraisal may also come in lower than the offered price. The buyer then may be on the hook for a higher down payment to make up the difference.

Lei advises her clients to hold back between 10% to 40% of what they can afford. That may mean they can’t get the house they want, but it doesn’t put them at financial risk, she says.

Another common problem real estate pros report buyers making in bidding wars: bidding with no contingencies. Buyers are waiving home inspections and their ability to walk away when an inspection reveals a major flaw with a home.

“If buyers want to be competitive in this market, they need to compromise on a lot of things,” Jared Blank, a managing partner of The Agency in Denver, told realtor.com®. That said, when a buyer’s offer is accepted on a home that is in need of repairs and falling apart, it’s no win at all, Blank says.

He recommends instead bidding at a comfortable price within the buyer’s budget and looking for compromises on other components of the offer, like the length of the escrow and the down payment.

Source: 

“7 Bidding War Mistakes Today’s Homebuyers Are Making in Droves,” realtor.com® (June 2, 2022)

©National Association of REALTORS®
Reprinted with permission

Shrinking Buyer Pool

The Federal Reserve unleashed another hike to its short-term benchmark rate Wednesday. The increase, the Fed’s largest since 1994, likely will have an impact on the housing market, economists say. The Fed’s key rate often influences mortgage rates, though it doesn’t directly affect them. Rates are moving at a much faster clip than most housing analysts forecast.

On Wednesday, the central bank’s Federal Open Market Committee voted to increase its benchmark funds rate by three-quarters of a percentage point to help tame inflation, which is at a 40-year high. Banks use the Fed’s rate as a benchmark for what they charge one another for short-term borrowing. The Fed’s latest hike sets a “big increase in interest rates and means several more rounds of rate hikes are on the way in upcoming months,” says Lawrence Yun, chief economist of the National Association of REALTORS®.

So far this year, the short-term Fed funds rate has jumped by 175 basis points. The 30-year fixed-rate mortgage has jumped even more—by nearly 300 basis points. For a $300,000 mortgage, the monthly payment has increased from $1,265 in December to $1,800 today, Yun says.

“That’s painful and, consequently, will shrink the buyer pool,” Yun says. “Home sales have recently been trending down toward 2019 figures. Sales could fall even further, with some inventory sitting on the market for more than a month like in pre-pandemic days. Pricing a listed home properly will, therefore, be the key to attracting buyers.” Mortgage rates will stabilize when consumer price inflation starts to fall, Yun adds.

Rising Mortgage Rates

Last week, the 30-year fixed-rate mortgage averaged 5.23%, according to Freddie Mac. A year ago, rates averaged 2.96%. By some measures, mortgage rates were just shy of 6%—at 5.99%—on Wednesday, according to Bankrate.com’s national survey. “Consumers haven’t seen mortgage rates above 6% since 2008,” Greg Schwartz, CEO and founder of mortgage lender Tomo, told Bankrate.com. “The pace of this move is what’s most concerning, as consumers’ buying power evaporated quicker than any time in recent memory. Further, volatility in rates may not decrease anytime soon either.”

Ali Wolf, chief economist at Zonda, offers an example of the impact: Affording a $316,000 home with a mortgage rate of 6% is about equal to paying for a $450,000 home with a 3% rate.

More aspiring home buyers are getting priced out. In response, mortgage applications, a gauge of homebuying demand, have been falling by double-digits. “Mortgage rates going forward will continue to be responsive to changes in expectations around the Fed’s policy path as well as inflation expectations,” says Ruben Gonzalez, chief economist for Keller Williams. “The housing market is still extremely tight, with inventory levels remaining near historic lows, leaving room for the market to absorb falling demand.”

The Fed committee hopes its more aggressive approach will help lessen inflation. “Clearly, today’s 75-basis-point increase is an unusually large one, and I do not expect moves of this size to be common,” Fed Chairman Jerome Powell said at a news conference Wednesday. Still, Powell said he expected the Fed’s July meeting to see another increase of 50 or 75 basis points, but he said decisions will be made “meeting by meeting.”

Nevertheless, the committee still appeared optimistic about the economy. “Overall economic activity appears to have picked up after edging down in the first quarter,” the committee said in a statement. “Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply-and-demand imbalances related to the pandemic, higher energy prices and broader price pressures.” The committee is forecasting inflation to move significantly lower in 2023.

©National Association of REALTORS®
Reprinted with permission

Protect Your Website From Copyright Claims

Copyright claims are growing in the real estate industry, and many cases end in a judgment against the agent or brokerage accused of violations. Your website or business materials may put you at greater risk for litigation than you think.

You could be held liable for copyright infringement even for photos from the MLS that are provided by a third party but appear on your website through an IDX display. Having a risk management strategy in place can help protect you and your business, says Chloe Hecht, senior counsel at the National Association of REALTORS®, in NAR’s latest “Window to the Law” video.

The Digital Millennium Copyright Act, or DMCA, which was passed in 1998, may offer some protections when posting third-party content—but it’s not a foolproof defense. The DMCA is a federal law that provides a “safe harbor” to avoid some copyright infringement claims, but certain procedures must be met.

Hecht highlights some of those steps in the video, including:

• Designate a copyright agent. This person will be responsible for receiving any takedown notices in case of copyright claims and will need to be listed as a contact and copyright owner on your website, along with their contact information. Also, register the copyright agent with the Copyright Office.
• Comply with the DMCA’s takedown procedure. After receiving any takedown notice due to a copyright allegation, promptly remove the content in question. Then, notify the person filing the complaint of its removal. “If the alleged infringer submits a counternotice, provide a copy of that counternotice to the copyright owner and state that the allegedly infringing content will be restored in 10 business days unless the copyright owner initiates a lawsuit,” Hecht says in the video. “Absent such a lawsuit, you may restore the content to your website.”
• Include a notice at your site. Inform website users of your copyright policy and include it within your website’s terms of use. View an example under the “Digital Millennium Copyright Act (DMCA)” section at nar.realtor/terms-of-use. Also, view the “Termination” section, which informs website users of enforcement for terminating repeat infringers.

Access additional copyright resources at nar.realtor/copyright.

©National Association of REALTORS®
Reprinted with permission

Homeowners Skeptical Over iBuyers

Sixty-six percent of homeowners recently surveyed say they don’t believe iBuyers yield higher sales prices than traditional sales. However, a nearly equal number say they would consider using an iBuyer due to the flexible options for selling, a new survey from Clever Real Estate finds.

The number of iBuyer companies and services has grown over the last few years, offering buyers a way to sell their house quickly by receiving an instant cash offer and setting their closing date.

While survey respondents mostly said they don’t believe iBuyers offer more at closing, they said they would be willing to accept an average of $45,400 less for their home in order to sell it instantly and choose their closing date, the survey finds.

But 72% of homeowners would still want to work with a real estate agent when requesting offers from iBuyers. Some brokerages have added iBuying arms, such as Keller Offers, RedfinNow, RealSure and others, to their companies to allow agents to continue to guide these instant-offer transactions.

Sixty-five percent of homeowners say they would consider selling their home to an iBuyer. Millennial respondents were more open to the idea (72%) versus baby boomers (52%).

That said, even though the iBuyer real estate model is now nearly a decade old, only 27% of about 1,000 homeowners surveyed by Clever Real Estate could correctly define what an iBuyer is. The sales strategy is still relatively uncommon; iBuyers comprised just 1.3% of home sales in 2021.

“The sentiment around iBuyers is complicated because the average American homeowner isn’t completely against them, but also doesn’t know much about them,” the Clever Real Estate survey says.

Source: 

“American Attitudes on iBuyer Companies: 2022 Data,” Clever Real Estate (June 6, 2022)

©National Association of REALTORS®
Reprinted with permission

Aging Housing Stock Prompts Remodeling Boom

The median age of a home in the U.S. is 39 years old. The aging housing stock signals a growing remodeling market ahead, according to a new report from the National Association of Home Builders.

As homes age, they need repairs or updated components such as appliances. Homeowners may add amenities to older homes as well, to have them better compete against more modern home styles and amenities.

“Rising home prices also encourage home owners to spend more on home improvement,” the NAHB says on its Eye on Housing blog. The aging housing stock also likely will lead to rising demand for new construction over the long run as homes get older, the NAHB notes.

More than half of owner-occupied homes were built before 1980. About 38% were built before 1970. Meanwhile, new-home construction has not kept up the pace over the past nine years, with the share of new homes dropping from 15% in 2006 to 7% in 2019, according to the builders’ trade group.

The share of housing stock built 50 years ago or more jumped from 30% in 2009 to 37% in 2019.

The country’s aging housing stock is prompting homeowners to make more home renovations, particularly younger owners who have faced limited housing inventories for sale. Nearly half of U.S. homeowners plan to upgrade or remodel their homes this year, according to a survey from 2021 conducted by LendingHome, a lender to real estate investors. The trend is most prominent among homeowners between the ages of 25 to 44, who are undertaking the most renovations and looking to bring new trends and renovations to the aging homes they purchase.

Source: 

“The Aging Housing Stock,” National Association of Home Builders (June 9, 2022)

©National Association of REALTORS®
Reprinted with permission

Buyers Pause Amid Rising Rates

Some home buyers are backing away from the market, with a plan to wait six or even 12 months before they resume their search, according to a new survey of 900 real estate professionals conducted by HomeLight. About 35% of real estate professionals reported that they have seen buyers drop out of the market completely.

Higher mortgage rates have buyers spooked. The 30-year fixed-rate mortgage averaged 5.23% this week, compared to 2.96% just a year ago, according to Freddie Mac.

Recent surveys confirm buyers’ hesitation: Mortgage applications recently dropped to the lowest level in 22 years, according to the Mortgage Bankers Association. Also, existing-home sales in April fell for the third consecutive month, according to the National Association of REALTORS®.

Does the departure of so many buyers position the housing market for a collapse similar to 15 years ago? “I would probably say no, in part because incomes are strong and there’s still a shortage of inventory,” Michael Neal, a principal research associate in the Housing Finance Policy Center at the Urban Institute, told MarketWatch.

Mortgage Rates Add to Costs

Some aspiring buyers may need to financially regroup before heading back into the housing market, due to rising home prices and mortgage rates. Climbing mortgage rates have caused new monthly mortgage payments to increase by an average of $258.57, or $3,102.84 per year, according to a survey released in May from LendingTree. LendingTree calculated the difference between average monthly mortgage payments of a 30-year fixed-rate loan in each state based on average annual percentage rates in January and April 2022. It found that mortgage payments have risen the most in California, Washington and Massachusetts. Mortgage payments have increased the least in Ohio, West Virginia and Kentucky, the study found.

Source: 

“‘All of This Points to a Broader Weakness in the Housing Market’: Buyers Are Officially Spooked by Rising Interest Rates—Just Don’t Expect a Real Estate Crash,” MarketWatch (June 9, 2022)

©National Association of REALTORS®
Reprinted with permission

Homeowners See 12-Month Equity Gain of $64K

Rising home prices keep pushing up equity for homeowners. The average homeowner gained about $64,000 in equity from the first quarter of 2021 to the first quarter of this year, according to a new report from CoreLogic.

About 62% of all properties nationwide saw an increase in annualized equity gains in the first quarter. California, Hawaii and Washington posted the highest average equity increases at $141,000, $139,000 and $114,000 respectively, according to the report. On the other hand, the states seeing the lowest equity gains were Iowa ($17,300) and North Dakota ($19,000).

This chart from CoreLogic shows the average equity gains from last year’s first quarter to this year’s in each state across the country.

Source: 

“Homeowner Equity Insights,” CoreLogic (June 9, 2022)

©National Association of REALTORS® Reprinted with permission

Mortgage Rates Turn Upward Again

Following three weeks of declines, mortgage rates reversed course and headed back up this week. The 30-year fixed-rate mortgage averaged 5.23% for the week ending June 9; a year ago, it averaged below 3%.

Increased economic activity and incoming inflation data were behind the most recent rate increases this week, says Sam Khater, Freddie Mac’s chief economist. “The housing market is incredibly rate sensitive, so as mortgage rates increase suddenly, demand again is pulling back,” he says. “The material decline in purchase activity combined with the rising supply of homes for sale will cause a deceleration in price growth to more normal levels, providing some relief for buyers still interested in purchasing a home.”

Fed’s Anticipated Rate Hike Looms

Economists will watch the Federal Reserve’s actions closely this coming week. The central bank is largely expected to raise its key benchmark rate at its next meeting, June 14-15.

“Ahead of May’s inflation reading, investors are concerned about inflation and the impact of an upcoming half-percentage point rate hike from the Federal Reserve next week,” Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®, writes on the association’s blog. However, “the upcoming rate hike will likely have a smaller impact on mortgage rates this time.”

In March, when the Federal Reserve raised its short-term interest rates, mortgage rates surged 80 basis points in the following three weeks, Evangelou notes. The 30-year fixed-rate mortgage jumped from 3.85% to 4.67% by the end of March. In May, when the Federal Reserve raised its interest rates even more aggressively, mortgage rates rose by less than 20 basis points. By the end of May, the 30-year fixed-rate mortgage averaged 5.10%.

“It seems that mortgage rates have already priced in some of the effects of the upcoming Fed’s rate hikes,” Evangelou explains. She is forecasting mortgage rates to average 5.6% to 5.7% by late 2022.

Snapshot of Mortgage Rates

Freddie Mac reports the following national averages with mortgage rates for the week ending June 9:

• 30-year fixed-rate mortgages: averaged 5.23%, with an average 0.9 point, increasing from last week’s 5.09% average. Last year at this time, 30-year rates averaged 2.96%.
• 15-year fixed-rate mortgages: averaged 4.38%, with an average 0.8 point, rising slightly from last week’s 4.32% average. A year ago, 15-year rates averaged 2.23%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.12%, with an average 0.3 point, increasing from last week’s 4.04% average. A year ago, 5-year ARMs averaged 2.55%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.

©National Association of REALTORS® Reprinted with permission

Second-Home Hot Spots

Many booming second-home locations are seeing a rapid growth in rentals. The pandemic spawned demand for second homes as an increase in remote work options prompted more Americans to relocate to resort areas.

Prices in second-home hot spots have soared, and so have the rental prices. Average rental prices increased 17.1% year over year in popular second-home markets in April, reaching an average of $1,893. For comparison, rental prices in areas that are not second-home destinations posted a 10% increase to $1,484, Redfin reports.

Home and rental prices particularly have been climbing in cities like Phoenix; Cape Coral, Fla.; Naples, Fla.; Myrtle Beach, S.C.; and Las Vegas, the top five second-home markets in the country, according to Redfin. Rental prices have risen by 25% or more year over year in four of the five of those regions, excluding Myrtle Beach. In Phoenix, rental prices grew nearly 33% year over year, to $1,924 in April.

“The popularity of vacation towns has sent housing costs through the roof, making it harder for many locals to afford to live in their hometowns,” says Taylor Marr, Redfin’s deputy chief economist. But “the second-home boom is ending as many vacation home buyers are priced out of the market due to historically high prices and high mortgage rates—but those same factors have already pushed locals to the sidelines. Locals in popular beach towns and vacation spots have spent the last two years competing for a limited number of homes with wealth second-home seekers—and often losing.”

Source: 

“Second-Home Hotspots Saw Outsized Growth in Rental, Home Prices During the Pandemic,” Redfin (June 8, 2022)©National Association of REALTORS® Reprinted with permission