Cash offers are overwhelmingly the top way for home shoppers to emerge as a victor in a bidding war. An all-cash offer tends to double a buyer’s odds of getting their offer accepted when in a competitive buying situation for a home, a new study from the real estate brokerage Redfin shows.
Followed by cash offers, writing a personal letter to the seller is the second most effective strategy to winning a bidding war, the brokerage found. Writing a personal letter to the seller can increase a buyer’s odds by 59%. Waiving the financing contingency can increase a buyer’s chances by 20%, which is down from 58% in 2017, the study finds.
Researchers found that waiving the inspection contingency did not significantly improve a buyer’s chance of making the most competitive offer in a bidding war.
Redfin researchers analyzed the most popular bidding war strategies among thousands of offers Redfin agents wrote on behalf of their homebuying customers over the last two years.
“A couple years ago, the market was much more competitive than it is now,” says Daryl Fairweather, Redfin’s chief economist. “Sellers might have had multiple cash bids to choose from, and the offer price more often ended up being the determining factor. Now that bidding wars are less common, an all-cash offer is often enough to make an offer the winning bid. Sometimes, financed offers fall through because the lender decides the buyer can’t afford the purchase or the buyer is too risky a customer. Especially in a less competitive market, sellers value an offer they know isn’t dependent on financing.”
Overall, bidding wars have fallen to a decade low. Only 13% of Redfin offers faced competition from January through September of this year, down from 55% during the same period in 2017.
It’s good to be a landlord: National rents on single-family homes rose 3% in September, as low rental housing inventories compared to demand continues to push up prices, according to CoreLogic’s Single-Family Rent Index.
“Low rental supply coupled with ongoing demand pushed up rents in September,” says Molly Boesel, principal economist at CoreLogic. “Vacancy rates have fallen moderately on the national level over the last quarter—with a 0.3% decrease in the third quarter of 2019 compared to a year earlier—and more significantly in select metro areas. Of the metros analyzed in the CoreLogic Single-Family Rent Index, Phoenix experienced the largest decrease in vacancy rates at 2.6%, which helped drive its rent growth to the top of the nation in September.”
Overall, the metro areas with limited new construction, low rental vacancies, and strong economies are attracting new employees and reporting the strongest rental growth, researchers note. Phoenix’s rental growth was driven by an annual employment growth of 2.4% (nationwide employment growth averaged 1.4%, for comparison). Seattle saw a 3.3% annual growth in its employment, which also was a big factor in its above average year-over-year rent increase in September, CoreLogic notes.
Rent prices in the lower tier—properties with rent prices less than 75% of the regional median—are seeing the largest spikes in prices, up 3.8% year over year in September, CoreLogic reported Tuesday. On the other hand, high-end rentals—those with rent prices greater than 125% of the region’s median rent—rose 2.9% in September.
Fannie Mae economists have upgraded the economic outlook for the coming year, and a big reason behind that is expected growth in the housing market. Housing added to economic growth in the third quarter for the first time in more than a year and a half. That momentum will likely continue in the fourth quarter and the first half of 2020, according to the latest forecast from Fannie Mae’s Economic and Strategic Research Group.
While consumer spending will be the primary driver of economic growth, housing should continue to function as a positive contributor in the near term, economists say. Both new and existing single-family home sales rose in the third quarter, as did pending home sales, housing permits, and starts, the paper notes.
That said, researchers note that challenges persist in housing, particularly the supply and affordability constraints that are holding back household formations and inhibiting some market activity.
Other risks to the economy include ongoing trade tensions between the U.S. and China as well as ongoing political uncertainty abroad. Still, Fannie Mae economists are predicting one more rate cut from the Federal Reserve in early 2020 before a pause for the remainder of the year.
“Even as global uncertainties mount, we continue to expect the domestic economy to produce solid, if not spectacular, growth,” says Doug Duncan, Fannie Mae’s senior vice president and chief economist. “As we forecasted, housing supported the larger economy in the third quarter, and we expect it to continue to play a productive role through the first half of 2020. Positive contributions from single-family housing construction, home improvements, and broker fees pushed residential fixed investment growth to a robust 5.1 percent annualized pace this past quarter, and we forecast continued but moderating strength as construction activity and home sales growth continue at a slower pace.”
With mortgage rates normalizing, Duncan says they expect a decline in refinance activity in 2020. The refinance share of mortgage originations will likely drop from a projected 37% in 2019 to 31%.
Mortgage rates declined this week, with the 30-year fixed-rate mortgage averaging 3.66%, Freddie Mac reports. After several weeks of increases, the drop in mortgage rates is a welcome sign for home buyers.
“The housing market continues to steadily gain momentum with rising homebuyer demand and increased construction due to the strong job market, ebullient market sentiment, and low mortgage rates,” says Sam Khater, Freddie Mac’s chief economist. “Residential real estate accounts for one-sixth of the economy, and the improving real estate market will support economic growth heading into next year.”
Freddie Mac reports the following national averages with mortgage rates for the week ending Nov. 21:
30-year fixed-rate mortgages: averaged 3.66%, with an average 0.6 point, falling from last week’s 3.75% average. Last year at this time, 30-year rates averaged 4.81%.
15-year fixed-rate mortgages: averaged 3.15%, with an average 0.5 point, falling from last week’s 3.20% average. A year ago, 15-year rates averaged 4.24%.
5-year hybrid adjustable-rate mortgages: averaged 3.39%, with an average 0.4 point, falling from last week’s 3.44% average. A year ago, 5-year ARMs averaged 4.09%.
Before purchasing a car, many consumers like to give it a test drive to make sure the vehicle is the right fit for them. Likewise, some house hunters are asking for a “test stay” at a home before signing the sale contract. While that’s not always possible, Tim McMullen, a sales associate with Kinoko in San Francisco’s luxury market, recently offered some tips in a realtor.com® article to accommodate as much of your buyers’ request as possible.
Book an Airbnb or other short-term rental. Your clients should aim for at least a three-day trip over a Thursday, Friday, and Saturday. This will give them a chance to scout out the neighborhood on a weekday and weekend.
Check real-time crime updates in the area. Your clients can use apps such as Citizen, which crowdsources crime reports.
Do a run-through of the commute. Suggest that your clients drive the route they would take between home and work, as well as the most convenient avenues to accommodate their shopping routine and other regular errands.
Visit local happy hours and weekend festivities. This will give your clients more of a feel for the neighborhood they’re considering. “Your goals should be to see as many venues as you possibly can, to get a sense of the ambiance and demographics of the local nightlife and social scene,” McMullen writes.
It’s a good time to be a homeowner: The share of equity-rich residential properties zoomed to a total of 14.4 million, shows the 2019 U.S. Home Equity & Underwater Report from ATTOM Data Solutions. Nearly 27% of all properties with a mortgage in the U.S. are now considered “equity rich,” meaning the combined estimated amount of loans secured by those properties was 50% or less of their estimated market value.
“There are notable equity gaps between regions and market segments,” says Todd Teta, chief product officer with ATTOM Data Solutions. “But as home values keep climbing, homeowners are seeing their equity building more and more, while those with properties still worth a lot less than their mortgages represent just a small segment of the market.”
The highest levels of equity-rich properties are all in the Northeast and Western regions of the U.S. The metros with the highest shares are in San Jose (62.7%), San Francisco (51.1%), Los Angeles (46.6%), Santa Rosa, Calif. (46.5%), and Honolulu (39.4%), the report finds. In the Northeast, the equity leader was Boston (at 35.4% of properties). In the south, Dallas had the most equity-rich properties at 38.2%, while Grand Rapids, Mich., led in the Midwest at 27.8%.
Good news for home buyers: Bidding wars are at the lowest point in a decade. But that could be short-lived.
In one closely watched industry index measuring bidding wars, just 10% of offers written by real estate professionals with the brokerage Redfin faced competition from other buyers in October, down from 39% a year earlier.
However, economists point to low mortgage rates and a shortage of homes for sale that will likely heat up buyer competition for properties and usher back bidding wars next year.
“Right now, there are fewer homes for sale than we usually see this time of year, and sales are picking up thanks in part to low mortgage interest rates,” says Daryl Fairweather, Redfin’s chief economist. “All of the pieces are in place for bidding wars to become more common and for the housing market to shift back toward the seller’s favor next year. Now may be the last chance in the foreseeable future for buyers to win a home without facing a bidding war.”
Bidding wars were the most common in October in California markets, led by San Francisco (34.8% of offers faced a bidding war), San Jose (20.5%), San Diego (15.6%), and Los Angeles (13.7%). Philadelphia rounded out the top five at 13.8% of offers last month.
While nationally bidding wars are down, they did hit new highs for the year in San Francisco and San Jose markets. Bidding wars rose in these metros at a time of year when usually the market cools, Redfin economists note. Still, both markets’ bidding war rates are well-below a year ago, in which they stood at 58.1% in San Francisco and 64.9% in San Jose.
Home buyers are realistic about housing shortages and aren’t expecting their home search to be easy. Sixty-eight percent of prospective buyers recently surveyed say they expect housing availability to get more difficult or stay the same, a new survey from the National Association of Home Builders shows.
The majority of surveyed buyers—59%—are perceiving fewer or the same number of homes for sale, not much different from a year ago, the survey shows.
Older buyers are more likely than younger buyers to expect worsening housing availability, the survey shows. Seventy-four percent of baby boomers believe that, compared to 67% of Gen Xers, 66% of millennials, and 64% of Gen Z buyers.
At least two-thirds of buyers in every region expect their home search to get more difficult or to stay about the same. Prospective home buyers in the West are the most likely to say their home search will get more difficult or stay the same (at 72%) while buyers in the Northeast and South regions were slightly more optimistic (both at 66%).
Fewer Americans are feeling the pinch of mortgage costs, but there is a catch, according to the latest U.S. Census Bureau data.
Only 20.9% of homeowners with a mortgage were cost-burdened in 2018, the bureau reports. That is down about 8 percentage points from a decade ago, when 28.8% of homeowners were considered cost-burdened by their mortgage. “Cost-burdened” is defined by the bureau as spending at least 35% of monthly household income on housing costs, which includes utility bills, real estate taxes, property insurance, and other common ownership fees.
However, researchers note the reason homeowners are less burdened by housing costs is because fewer people own homes now. The homeownership rate was 67.9% 10 years ago. Today, it is 64.8%.
Meanwhile, the nation’s rental population has grown to its largest size on record—43.8 million, the bureau reports. Rising home prices and student loan debt may be prompting more adults to delay homeownership.
Housing costs for renters have remained stagnant, but are still large burdens for the increased population. About 40.6% of renters spent 35% or more of their monthly household income on rent and utility bills in 2018, census data shows. That is about the same as 2008, but it represents a higher renter population. The greater burden may be making it more difficult for renters to save enough to transition into homeownership.
Mortgage rates climbed again this week, and economists say the trend may well continue as the economy sees some improvement. The 30-year fixed-rate mortgage averaged 3.75% this week, Freddie Mac reports.
“The modest uptick in mortgage rates over the last two months reflects declining recession fears and a more sanguine outlook for the global economy,” says Sam Khater, Freddie Mac’s chief economist. “Due to the improved economic outlook, purchase mortgage applications rose fifteen percent over the same week a year ago, the second highest weekly increase in the last two years. Given the important role residential real estate plays in the economy, the steady improvement of the housing market is a reassuring sign that the economy is on solid ground heading into next year.”
Freddie Mac reports the following national averages with mortgage rates for the week ending Nov. 14:
30-year fixed-rate mortgages: averaged 3.75%, with an average 0.6 point, rising from last week’s 3.69% average. Last year at this time, 30-year rates averaged 4.94%.
15-year fixed-rate mortgages: averaged 3.2%, with an average 0.5 point, rising rom last week’s 3.13% average. A year ago, 15-year rates averaged 4.36%.
5-year hybrid adjustable-rate mortgages: averaged 3.44%, with an average 0.4 point, rising from last week’s 3.39% average. A year ago, 5-year ARMs averaged 4.14%.
