The type of real estate market that was seemingly reserved for one of the coasts or some booming metropolis has likely now spread to your neighborhood.
Houses that might have taken a couple of months to sell only a few years ago are now being snapped up in days — or even hours — as buyers are anxious to take advantage of historically low mortgage rates at the same time there’s a tight supply of houses.
It’s a phenomenon that’s occurring across most of the country, including the Michiana region where the median sales price for some homes has jumped by double-digit percentages in the first four months of this year compared to the same time last year.
And its led buyers to offer more than the asking price for homes, pick up expenses usually paid by sellers and even write “love letters” and waive inspections.
“In the past, this kind of market was reserved for other places,” said Myron Larimer, CEO of the South Bend Area Realtors. “Now, it’s prevalent just about everywhere and across most price points.”
The problem on the supply side is largely attributed to the lack of new houses that have been built since the industry was flattened during the Great Recession more than a decade ago. And because of a shortage of workers in the industry and higher prices for building materials, houses that are being built today are generally priced higher than $300,000, according to experts.
At the same time, more people have been motivated to become homeowners or move up in the market because of low interest rates and the need for more room that became apparent to many during the height of the Covid-19 pandemic.
John De Souza, president of Cressy & Everett Real Estate, likened the problem to the some of the shortages that occurred during the pandemic. Though companies were still producing plenty of toilet paper, for example, store shelves were often empty because people were snatching it up whenever was available.
Through the first four months of the year, the number of closed sales in St. Joseph County jumped 5.8% to 1,016 and the median sales price increased 7.5% to $150,500. In Elkhart County, closings jumped by 6.4% to 597 and the median sales price increased by 13.1% to $181,000.
“We’re selling an incredible number of homes,” De Souza said. “It just that they’re sold almost as soon as they’re getting listed.”
In St. Joseph and Elkhart counties, 22% of the homes that were listed in the first four months of the year were under contract by the next day, and in southwestern Michigan 12% sold that fast, said De Souza, citing figures compiled by the Association of Realtors.
A whopping 73% of all homes listed in the first four months this year were sold within 10 days in St. Joseph and Elkhart counties, and southwestern Michigan wasn’t far behind at 50%, De Souza added.
The speed at which the market is moving has made it tough on prospective buyers and the agents who represent them. Both have to be ever vigilant for new listings and ready to act.
“This is not a market for amateurs, I’ll tell you that,” De Souza said. “You have to act with speed and you will likely have to get creative.”
Escalation clauses have become commonplace in purchase contracts, meaning that prospective buyers are willing to pay thousands of dollars more than the asking price in order to beat out potential competitors.
Some of those escalation offers actually are going higher than appraised values, said Beau Dunfee, managing broker with Weichert Realtors — Jim Dunfee & Associates. But since lenders typically don’t approve such loans, buyers are offering to make up any difference with cash.
And that’s just the start.
Beyond escalation clauses, buyers are offering to pay portions of the seller’s expenses — such as property taxes — or waiving repairs that might be found during a home inspection. And because sellers are trying to avoid offers that might fall through or might take longer, cash offers stand out and VA and FHA loans might be viewed as too cumbersome.
Some sellers want a quick and hassle-free deal, but others are looking for deals that give them ample time to find a home for themselves. Though closings typically occur within 30 days, they can be delayed in order to give the seller more time to relocate.
And some homebuyers have even agreed to allow sellers to remain in the home after the closing for a set period of time in order to ease the anxiety of finding a different one.
“Everyone is facing the same problem,” De Souza said. “If you’re a seller looking to downsize, you’re going to be facing the same competition.”
It took several attempts before Jennifer Lillie, an agent with Cressy & Everett, was able to find a home for one of her clients, who will be closing on a home in Mishawaka this week. “Even though we wrote good offers, there were 28 people after one of the houses that she got outbid on,” she said.
Escalation clauses and flexibility on closing sometimes just isn’t enough, Lillie explained.
“There were 28 offers on one of the houses that she got outbid on,” she said of the extreme competition.
Some buyers have resorted to so-called love letters to sellers. In such a letter, a prospective buyer might say how much they love the home and how it’s been cared for, but they also can be the source of Fair Housing violations if the buyer’s race, religion or familial status, for example, might be deduced from the letter.
Beyond the possibility of violating Fair Housing rules, the other problem with such letters is that sellers have no way of knowing whether any of the comments are even true, said De Souza. “Everything could just be made up.”
But for some people, the need to find a house is real and becoming increasingly immediate.
Nick Bickel, an agent for the Weichert/Jim Dunfee firm, sold Camille and Charlie Guse their first house on the south side of South Bend about four years ago, and now he’s trying to help them find a larger one — and they’re working under a deadline.
Camille said they thought they had the right size house. But with the Covid-19 lockdown and a baby on the way, they decided to venture into the market — even though they know how competitive it is right now.
“We’d like to get this done before I move into the third trimester in August,” she explained. Most recently, they got outbid on a home even though they were willing to go $27,000 over the asking price and pick up additional costs.
“We’re not going to give up,” she said. “But I am getting a little nervous because the baby is reminding me how fast it is growing.”