Asking Price for Homes Hits New High, But There Are More Issues

We are living in the era of a seller’s housing market, so much so that the median asking price for a single-family unit rose 15% in one year, and hit a record-high of $390.488. When the asking price rose, the selling price followed, because buyers are trying to catch the last train of somewhat low mortgage rates.

The Fed’s plan of slowing down the rapid inflation by controlling the rates has been temporarily stopped by the Russian invasion of Ukraine. The rate has been growing since the start of the year and it was supposed to dampen the demand.

The mortgage rate for a 30-year-fixed loan is 3.76%. To compare - the rate was 2.81% in February 2021 and hasn’t been higher than 3.5% since the start of the pandemic. The buyers took all of that as a warning and decided to grab the last opportunity of a dream home.

This prompted a never-before-seen number of houses that sold for six figures more than what the seller listed - around 6,000 houses were bought for at least 100,000 dollars more than the asking price.

Most of those houses are located in California, mainly the Bay Area and Los Angeles. This report also shows that Dallas, TX had only 7 such cases in 2021, but already 95 cases in 2022. This corresponds to the data showing many Californians have been moving to Dallas since the start of the pandemic.

Redfin’s report from January states an all-time record for bidding wars - 70% of all houses got sold after at least two offers. Bidding wars became the new normal in the pandemic real estate market, but it has been exhausting for the buyers who need to make an offer on 5 - 8 on average before succeeding. Not only did they have to up the price, but many buyers were willing to skip inspections and waive contingencies in order to keep the seller sweet.

Is It Efficient to Overpay a House?

The buyers who are looking at a house in a mid-level price range are willing to pay more than enough in order to sign on a loan, as soon as possible. Once the rate goes up, and it will, they are not going to be able to afford that price range.

At this rate, a borrower is paying around $1,450 each month for a $320,000 loan. If the rate got to 4.5%, a borrower would be paying more than $1,600 for the same loan. However, a higher value of the house means a higher down payment, so not many can afford to price out other competitors.

House-hunters from all price ranges have been competing for a home, which is unusual. It is expected from a high-earning buyer to pay excess money on a dream home because they can afford it. It is the low-priced range that surprises the experts and shows just how much the market has been preoccupied with demand. Around 50% of all houses sold for under $300,000 have been sold well above their asking price.

The market should be slowly calming down during the rest of the year, as soon as rates start going up again. Growing rates should indicate lower inflation, which would subsequently prompt home builders to finish all pending projects and create an influx of inventory on the very deprived market.

Author:

Cesar Gomez , Broker /

Cesar has worked as a real estate agent and broker in the southern California region since 2013.

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