The housing market has been hot for the last two years, so much so that demand on the housing market didn’t stop even during the Christmas season. Some data shows an expected slowdown of bidding wars in the month of December, but compared to 2020’s 54%, it’s still a high number - 59.6% of all home offers in the US faced a bidding war in December of 2021.
A bidding war in real estate is a competition between two or more home buyers. Every house hunter makes an offer, whether it is upping the price or adding some benefits for the seller, in hopes of winning and getting the chance to buy the house.
In the housing market that is high on demand, but low on supply, bidding wars happen much more frequently and are very exhausting for the buyer. But, the housing market during the pandemic made it so the bidding wars are a new normal for potential homeowners.
The highest bidding war rates can be seen in Utah and Arizona, where more than 70% of all offers faced opposition. Some agents say that a property can have up to 10 prospective buyers. There was a house in Oregon that sold for $600,000 more than the asking price.
Homes that are in the ‘’more expensive’’ category are more likely to face bidding wars, especially the ones in the $800,000 - $1 million range. This seems logical because people with high income have the privilege of upping the price in order to get their dream home. During the last month of 2021, almost 65% of all homes from that range faced a bidding war.
What is surprising is the number of bidding wars for lower-priced homes. More than 50% of all property in the lower ranged category was sold after a competition. Single-family homes going for $200,000, multi-family homes, and condos all sold well above their price.
When the pandemic started in 2020, mortgage rates were the lowest since the beginning of the century. People started working from home and craved more space. At the same time, home sellers were not so eager to put their houses on the market. Construction stopped for a few months, the cost of building material has risen since, and there is a shortage of experienced labor.
All these conditions created a high demand, and a very low supply of property, especially in the Sun Belt states. There is a new reality of bidding for several houses at the same time, even without ever entering them, just because buyers know that this increases the chances of buying any real estate.
Also, it is often that the alluring offer is not about the money, rather the benefits for the seller. House hunters make offers that suggest waiving contingencies, skipping inspections, or making cash payments. Realtors advise against making offers that can cost a homebuyer more trouble in the future.
December 2021 is the month with the lowest number of competitions since late 2020. Was it the holiday season that slowed it down, or is it influenced by the exhaustion of homebuyers? What awaits the bidders in the year to come?
Some predict that the pandemic’s bidding war era is easing, due to increasing mortgage rates, as well as the intensity of creating a supply of homes in 2022 and 2023. There is also a record high inflation rate increase of 7% in December 2021, which could decrease the demand.
Less demand and more supply could create a more buyer-friendly housing market. We are yet to find out what will come out of the post-pandemic world, when we get to it.
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