Magdalena Horta describes her experience purchasing her first home as “very stressful.”
Horta, 43, and her husband, Luis Rodriguez, 42, began house hunting in March 2021.
“Every time we went to see a house that we liked, we would bid and then wait for days before we would get an answer, which was usually a ‘no’ because people would come with cash on hand to make a bigger offer,” Horta said. “It was frustrating.”
Fewer homes on the market along with buyers rushing to beat expected mortgage rate hikes has led to bidding wars and an overwhelming experience for many first-time homebuyers.
“Unfortunately, in this competitive market, people are making desperate offers of $10,000 to $40,000 more to get the property they want,” said Ada Rivera, owner of Lancaster city-based Home 1st Realty. “A first-time home buyer doesn’t stand a chance.”
Fortunately, for Horta and Rodriguez, Rivera was able to help the couple settle on a home in January, nearly a year after the couple began looking. The couple was able to secure a 30-year fixed mortgage with a 3.69% interest rate for their $215,300 home, which they purchased at 7.6% over the asking price of $200,000.
Nationwide existing-home sales from December 2020 to December 2021 fell just over 7%, from 6.65 million to 6.18 million, according to the National Association of Realtors. Regionally, existing-home sales in the Northeast fell 15.7%, from 890,000 to 750,000, in the same time period. Existing homes are homes that are owned and occupied before going on the market. Existing-home sales measures the transaction volume of existing single-family homes, condos and cooperative, or co-op, homes.
“The inventory will build up a bit as we get into the year, but this is as low as I’ve seen it,” said Greg Bardell, president of the Lancaster County Association of Realtors.
Rising home prices fueled by a record low housing inventory threatens housing affordability, especially at the local level, according to the National Association of Realtors. And although mortgage rates still are lower than a year ago, mortgage payments are higher in 98% of the counties in the United States due to the fast price increases of homes sold in a competitive market.
Bardell said that, according to Bright Multiple Listing Service, in late January, the number of available homes for sale in the entire county was 281, down from 295 in December 2021. In the city, there were 63 homes available for sale, down from 67 in December 2021.
The average home sale price in the county in 2021 was $292,025. In the city, the average price was $204,318. In 2020, the average home sale price in the county was $256,666, and $182,088 in the city.
“At some point, we expect to see both sales volume and average sale price temper if interest rates continue to rise. But when that happens is anyone’s guess,” Bardell said.
Realtor Mike Julian from Realty One Group Unlimited said the average sales price of the homes he sold in the last six months of 2021 was $295,000, with 92% of the homes getting an offer on the list price or at least 6% above.
“Based on the average sales price, that means a typical over asking price offer would have been $17,700,” Julian said. “This average holds true across all price points.”
‘It’s all about supply and demand’
When Christina and Ian Mocniak, both 26, decided to purchase their first home at the beginning of May 2021, they turned to Julian.
“Our realtor told us that most buyers were offering 10% to 15% more, so we knew we needed to offer more, and we were comfortable with it,” Christina Mocniak said.
So, when the Mocniaks found a townhouse they liked in Coatesville, Chester County, they made an offer that amounted to just over 4% of the asking price.
“It was listed at $179,500, and we offered $187,500,” Christina Mocniak said in a text message. “When we did the math for what we could afford for monthly payments, we felt comfortable offering 4% more.”
Their offer was accepted May 23, 2021.
The couple was able to secure a 15-year fixed mortgage at a 2.6% interest rate.
Julian said he recently worked with two different clients from out of the area who made significant offers over the asking price.
“They set the bar at 14% and 16% over the asking price, which in their particular cases meant $45,000 to $50,000 over the asking price,” Julian said.
Bardell, president of the Lancaster County Association of Realtors, said it’s not uncommon to get 15 to 20 offers from the day a property goes on the market.
“People are paying more than the house is listed for,” he said. “In one particular case, the buyer offered $100,000 over the asking price.”
Bardell said he’s keeping an eye on interest rates, adding that at this time last year, rates were at 2.6% with 469 homes available to purchase.
“The rate is now 3.45%,” he said. “If it continues to rise, it equates to less affordability of what your money is going to buy.”
“We are expecting rates to stay relatively low to historic numbers, but any upward movement robs buying power,” said Rod Messick, CEO of HomeServices Homesale Realty, Lancaster County’s largest residential real estate brokerage firm. “Rising rates will take buying power away especially for entry and mid-level homebuyers.”
From a home buyer’s perspective, he said, a $1,500 principal and interest monthly payment with 20% down payment, buys a $430,000 home on a 3.25% interest rate loan.
“But if the rate goes up 1%, it will decrease the buyer’s purchasing power to $381,000. What this means is some buyers will be knocked out of the race for some time. They will not be able to qualify for the homes that are available,” he said.
While an increase in inventory is likely in spring and summer, it might not be enough to meet demand, he said.
“It’s all about supply and demand,” Messick said.
“Lancaster is historically an area that continues to grow. People keep coming to live in Lancaster. We are going to see prices increase some limitations on inventory,” Bardell said.