Monday, May 20, 2013

Home-buying frenzy: Strong demand collides with scarce inventory

The Open House on a leafy street near South Miami featured a snack wagon with cupcakes and chilled beverages, but the real draw was the newly listed house for sale for $435,000.
Over a two-hour stretch on a Sunday afternoon, 44 groups of couples and families streamed through the well kept 2-bedroom, 1 1/2 bath house on an outsized lot.

They didn’t come to eat cupcakes: Five purchase offers came sailing in – three that day, two the next.
“I’m continually overwhelmed by the response when houses come on the market,’’ said Lisa Dority, a RE/Max Advance Realty agent who listed the home. “If a house is priced properly, it goes quite quickly.’’ Since last fall, she said, her listings typically have been selling within the first week.

The buying frenzy is reminiscent of the boom days of 2005 and 2006 – except today’s buyers are using cash and heavy equity, not “liar loans’’ boasting inflated income or assets.

Rising buyer demand is colliding with a shortage of supply, making the always-emotional experience of buying a home all the more intense. Multiple offers are competing for a scant supply of homes and condominiums for sale. Bidding wars are breaking out. Properties are fetching asking price – and
often more. Prices are up double digits year over year and rising at a brisk pace.

With the peak buying season in full swing, South Florida’s housing market is on fire. Real estate agents complain about needing more to sell. Traditional homebuyers shopping for a place to live are facing stiff competition from cash-rich investors, including foreign buyers and institutions.

Given the imbalance of supply and demand, working with a sharp-eyed agent who monitors listings soon as they hit (sometimes even finding off-market prospects that fit a buyer’s criteria) is critical in today’s market.
While South Florida’s coastal and urban cores have seen the biggest rebounds, buyer interest is coming in all shapes and sizes, with the outlying areas picking up as well.

“What we’re seeing is pent-up demand,’’ said Philip Vias, a broker associate with Prudential Florida Realty in Fort Lauderdale. “Not that much has been bought in the last few years.’’
The inventory of homes and condominiums for sale in Miami-Dade and Broward counties has plunged to the lowest levels since 2005.

Mortgage rates are at historic lows, thanks to the Federal Reserve’s unprecedented maneuvers to stimulate economic growth. The interest rate on a 15-year fixed-rate mortgage last week was 2.74 percent and 3.60 percent for a 30-year fixed-rate mortgage, according to That cheap money is boosting the buying power of homebuyers.

Banks have begun to ease terms on mortgages, with down payments of 10 percent and less increasingly available, widening the options for prospective buyers to jump in. Said Vias, “interest rates are so low, people are crazy not to buy.’’

And with housing prices in Miami-Dade and Broward marching higher, many buyers are feeling a sense of urgency to act now or miss out.

“We have a chance to grab something. We want to take advantage of this great market. Interest rates are low,’’ said Leonard Bridgnauth, a 36-year-old courier, who with his wife Kimmy has been scouring the Miramar area for a house in the $250,000 range since December, so far without luck.

“Because inventory is so low, it’s creating some kind of a frenzy,’’ said Chuck Bonfiglio, president of the Greater Fort Lauderdale Realtors and broker owner of AAA Realty Group in Pembroke Pines. “People are pricing their homes over what the market is... Buyers know inventory is low and are willing to pay over appraisal to get the deal done.’’

Listings that sit unsold in today’s market are either overpriced or have some issues, agents say.
Fueling the inventory shortage is the huge share of underwater mortgages. Even as prices have rebounded off their 2011 lows, four of every 10 mortgaged homes in Miami-Dade and Broward counties had debt greater than market value in February, according to CoreLogic, a Irvine, Calif.-based data firm. That marks an improvement from the dark days of December 2009 when 56 percent of Broward’s mortgaged homes and 52 percent of Miami-Dade’s were under water.

The lack of home equity has sidelined many would-be sellers, who would have to make up the difference between the amount they owe and the sales price. “They just don’t want to come to the closing with a check,’’ said Ron Shuffield, president of EWM Realty International, a Coral Gables-based brokerage.
And with inventory so tight, some would-be sellers wonder where they would go.

Shuffield, who is an avid tracker of real-estate data, said “The number one metric in our business is the number of months of supply.’’

Six months of supply – or six times the number of homes sold in a month – is considered a balanced market between buyers and sellers. As the inventory rises, buyers gain the upper hand and prices turn soft; with less supply, sellers call the shots and prices rise faster than normal.

In March, Miami-Dade had a 4.8-month supply of single-family homes and a 5.8-month supply of condos for sale. Broward had a 3.6-month supply of single-family homes and a 4.4-month supply of condos.

Aggravating the shortage: New construction of homes and condominiums came to a standstill during the downturn, and while thousands of condominium units are in the works in South Florida, most projects won’t be ready for several years.

Many economists and Realtors say the housing recovery has plenty of room to continue, although the dramatic price gains of the past two years will likely moderate over the next year or so.

“I don’t see interest rates going up soon. There are still a lot of people wanting to get in. I see us maintaining this over the next year. Over five years, who knows?” said Drew Epstein, a broker with Century 21 King Realty in Sunny Isles.

Miami’s housing collapse has drawn global attention, even as its reputation as a coveted destination has climbed. That boosts the lure for investors looking for the safe harbor of a U.S. investment at a relative bargain, especially for distressed properties and lower-end residences that make easy rentals. “There are still Russians, but there are Brazilians, Italians, Venezuelans with money. People are buying to hold. Very few people are looking to flip.’’

Cash buyers clinched 64 percent of home and condo sales in Miami-Dade and Broward in March, according to the Miami Association of Realtors and the Greater Fort Lauderdale Realtors.

A cash offer typically will win, even one that is thousands of dollars below another that requires mortgage financing. Cash is particularly compelling if the buyer seeks few contingencies, such as hinging a deal on inspection or appraisal.

In January, Tracy and Collin Ross made an offer on a house in South Miami less than two days after it came on the market. When the sellers made a counter offer, they agreed to the higher price.
The Rosses, who have good credit, plan to put down 20 percent and get a conventional mortgage for the rest.

There was the rub. During negotiations over documentary stamps, the sellers suddenly put on the brakes.
“They took a cash offer for $8,000 less than we offered,’’ said Tracy Ross. “We don’t have cash to compete. From what we’re hearing, the appraisals aren’t catching up with the market, so people are taking lower cash offers.’’

For the Rosses, who have been hunting for a home for six months, that was Strike One. With their second prospect, also in South Miami, they made an offer within three days of the house coming on the market. But a bidding war erupted, and they wound up dropping out.

In a third effort, the Rosses rushed to make an offer within 24 hours of a house hitting the market. “We offered $6,000 above the asking price,’’ said Tracy Ross. The upshot: The Realtor informed them the property had drawn five offers, and theirs wasn’t competitive.

“The search continues,’’ Tracy Ross said. “We need to move. We’re living in an 800-square-foot condo with two dogs, two kids and the two of us.’’

Jacque and Stephan McLean, who have been house hunting near Miramar since December 2012, have submitted five offers, all in vain. The McLeans, who are renting a home, plan to make a 20-percent down payment and get a conventional mortgage for the rest.

“The last offer was $20,000 more than the listing price and we still didn’t get it,’’ said Jacque McLean, a financial analyst at the Veterans Administration and Army veteran whose husband is a truck driver at Port Everglades.

“There is a lot of greed going on. We’re going right back to what happened in 2006 and 2007 in Florida,’’ she said. “Normal people just looking for a place to live can’t buy a house.’’

“We are approved for a loan, we’ve got cash in the bank and we’re ready to go,’’ the wife added.
On May 7, she spotted a house online and phoned her agent to make an offer – without even seeing the property.

The 5-bedroom, 3-bath house in Miramar was a short sale listed for $330,000. When the McLeans’ agent, Bette Abrams, called the same morning to make an offer, she said the seller’s agent told her “We have an offer for $390,000 all cash.’’

There were “30 showings, and it was just put on the market this morning,’’ Abrams said.
In the pecking order of homebuyers, those with solid credit and a big down payment who are pre-approved for mortgage financing have the next strongest hand after cash buyers. That is especially true if they have extra cash and are receptive to paying above appraisal if the appraisal comes in lower than the contract price.

“Many sellers are saying ‘We want you to waive the appraisal,’” said Abrams, who works at Coldwell Banker in Coral Springs.

That’s what happened to the Bridgnauths. The couple, who married a year ago and have a 20-percent down payment and good credit to get a conventional mortgage, made an offer on a house in Miramar. Not just one appraisal – three – came in below the contract price.

The seller balked at reducing the price, suggesting instead that the couple pay above the appraisal.
Many buyers are doing just that with the rationale that appraisals aren’t keeping up with rising market prices.
Buyers counting on FHA financing typically have among the weakest hands in wooing sellers weighing an abundance of offers.

“A lot of FHA buyers are being shunned, mainly through the misconceptions by real estate agents,’’ said Adam R. Cohn, senior mortgage banker at The Mortgage Firm Inc. in Deerfield Beach. FHA homebuyers “are so frustrated by it.’’

Among other things, Cohn said, some real estate agents mistakenly “think appraisals [done for FHA mortgages] come in lower [than those for conventional mortgages], and that’s simply not true.’’
With the keen competition for homes, it’s essential that shoppers have their mortgage pre-approval lined up, and they should be ready with documentation: pay stubs, tax returns and bank statements to prove they are serious contenders for a property.

And real-estate agents are counseling their buyers to avoid complicating offers with unnecessary contingencies that make them less attractive.

Some agents are advising clients to go in with the highest and best offer right away, rather than trying to negotiate back and forth.

“It’s not a matter of buying at the right price. It’s a matter of buying at the right time,’’ said Ray Barkett, regional vice president and district sales manager for Keyes Realtors in Fort Lauderdale, who believes tight inventory and historically low interest rates will keep pushing home prices up for at least a year. “And this is the right time.’’

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