Author Topic: It only takes 1 extra buyer to raise prices sky high  (Read 585 times)

KateFIRE

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It only takes 1 extra buyer to raise prices sky high
« on: April 09, 2021, 06:23:59 AM »
We are trying to buy in Colorado. Weve offered 4 times and lost, there is always 1-3 other buyers. After we bid and lose I think, that sucks for us, but it also sucks for the person that won. Now they are paying $35k over asking price. For all 4 offers that we lost, we have raised the prices in the area. Every month the homes increase in value, but its not necessarily that there are many buyers, it only takes 1 extra buyer in an area.

Weve bought 2 homes in our life. Both times we were the only active offer and ran comps to advise on the price. In this market our realtor never runs comps for us! The price is whatever the bidding war determines.

10 homes, 10 buyers= asking price
10 homes, 9 buyers= asking price for 9/10 homes. 1 home 2-5% lower.
10 homes, 11 buyers= 2-5% over asking price for 4/10 homes!

If only we could lose that one extra person, this bubble would quickly end.



maizefolk

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Re: It only takes 1 extra buyer to raise prices sky high
« Reply #1 on: April 09, 2021, 06:53:47 AM »
Inelastic supply. If the price of houses goes up 20% it isn't going to convince many (or any) people to sell their houses and move back into apartments. If there is land and zoning laws aren't too onerous, it might spur more new construction but new construction takes longer to hit the market, and in many of the biggest and most expensive cities isn't a significant contributor to housing supply at all. So if more people want to buy houses than there are houses for sale, prices have to keep rising until enough of the people who want to buy houses are priced out of the market. At that price point supply and demand equalize.

But it has always been the case that more people want to live in single family homes than the total number of such homes. And it has always been the case that the limiting factor isn't how many people want to buy homes, but how many people can afford to buy them at the current price for houses. So I don't think the problem right now is too many people wanting to buy homes. It is that, through a combination of very low interest rates and a huge increase in savings rates over the last year, many more people can afford to pay much more to buy a house. So it takes a much higher prices than in the past before enough people cannot afford a house for supply and demand to equalize.

TL;DR My view is that high housing prices aren't driven by too many people who want to buy homes, but by people having much more money to spend on buying a house than in the past.

KateFIRE

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Re: It only takes 1 extra buyer to raise prices sky high
« Reply #2 on: April 09, 2021, 08:08:34 AM »
 People are making $100-200k from selling their homes and using that cash to upgrade. Young people are  moving from apartments into $300k homes which the person selling bought for $200k. Now that person has a $150k down payment and can buy a $600k home. I think many young people are forgetting that you historically you have to live in a home for 4 years before you break even on closing costs. It seems to me that young people today change more frequently than older generations. They change jobs, are not having long term relationships or children in as high of numbers as in the past. I think there will be more turn around in homes in the future with people living in homes for 2-4 years and then trading to a new home, treating it similarly to an apartment. I wonder how that will effect the housing market?

Caoineag

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Re: It only takes 1 extra buyer to raise prices sky high
« Reply #3 on: April 09, 2021, 10:29:55 AM »
Unfortunately Colorado isn't really a bubble. You are dealing with a super high interstate migration. There will never be enough homes for all the people moving in. 50k+ people moving in per year when I left, I think? When I bought our house there over a decade ago, we were only able to buy because the great recession cut off a bunch of people's down payment assistance. Only having 1-3 other bidders on a house there seems super low...

Villanelle

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Re: It only takes 1 extra buyer to raise prices sky high
« Reply #4 on: April 09, 2021, 02:55:35 PM »
Where I live (DC area) rentals have now started going for over asking.  There are literally bidding wars on rentals, or people just saying that they will pay $4000 on a $3700 listed rental. 

I know you were speaking somewhat metaphorically, but it would take a lot more than removing 1 person from the loop.  On a property that gets 40 offers, you'd need to remove 39.  And in reality you have to multiply that by thousands of homes (of course there is crossover so it's not exact).  In our area based on # of places listed compared to average (and here even "average" likely has a fair amount of competition), it seems like we would need at least ~10% fewer-home seekers (both renters and buyers) just to get things to stabilize to something coming close to matching inflation. 

maizefolk

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Re: It only takes 1 extra buyer to raise prices sky high
« Reply #5 on: April 09, 2021, 02:58:06 PM »
Bidding wars on rentals is a new one to me. Yikes.

NorCal

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Re: It only takes 1 extra buyer to raise prices sky high
« Reply #6 on: April 09, 2021, 03:03:30 PM »
Yea, I'm in CO and grateful we bought in 2018.

The biggest problem right now (at least in metro Denver) is a lack of supply.  I was checking in on local statistics last month.  I forget the specifics, but I want to say Denver only had something like 1,200 active listings where it's normally multiples higher than that.  I actually think we're at the point where Denver has more real estate agents than active listings.

There's a "Denver Real Estate Investing" podcast that's pretty good.  It's targeted at first time investors, but he does do a market-stats update every month or so.

Best of luck with this crazy market.  I know it's hard, but all it takes is for one offer to be accepted.


Imma

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Re: It only takes 1 extra buyer to raise prices sky high
« Reply #7 on: April 09, 2021, 03:21:28 PM »
Bidding wars on rentals is a new one to me. Yikes.

In my city (not US) pre-pandemic it had become normal to offer a "voluntary payment" on top of first month of rent, last month of rent and deposit. Basically a tip, on top of an already sky-high rent. Either a larger payment (4-figures) up front or a higher rent. Due to the pandemic, many expats and students returned home so the rental market has cooled down, but the market for buyers is going insane. People who live in apartments really want to buy family homes now and investors are snapping up their apartments because they know the expats will come back, and they basically get free money from the banks to buy the investment properties.