Welcome to San Diego Blog | February 10, 2021
San Diego County Housing Report: Bidding War
When a home hits the market, it is greeted with throngs of buyers and so many offers to purchase that a bidding war ensues.
It is not uncommon for homes marketed FOR-SALE to procure 5, 10, 15, or even more offers to purchase within a few days of coming on the market.
Charity auctions can be very entertaining. There is always something that nearly everyone wants. An Italian villa, a gourmet chef for a week, a ski chateau in the Rocky Mountains, all garner plenty of attention. After scouring all the details, attendees strategize and settle on their maximum bids. The auctioneer starts the bidding low to capture everyone’s attention. Paddles are eagerly raised one after the other. There is so much interest that the auction transforms into a bidding war. The value soars upward until it finally slows, and a winning bidder is revealed. The final price is typically a lot more than many of the bidders were originally willing to pay.
That in essence is what is occurring daily in the real estate trenches. Homes that hit the market are instantly greeted with plenty of buyer interest and a stream of showings. In no time multiple offers follow. Buyers are pitted against each other and a bidding war develops. Countless buyers offer the full asking price, only to receive a counteroffer that asks them to come back with their highest and best offer to purchase. Yes, in many cases that means that a buyer must be willing to pay higher than the asking price to be the winning bidder. Many homes ultimately sell for more than their asking prices.
There are a lot of reasons the market is exceptionally hot today. The leading factor is record-low mortgage rates. The monthly and annual payment savings are jaw-dropping and has been the catalyst to a tsunami of buyer interest. Another factor is the lack of available homes to purchase. There are fewer homes coming on the market right now because it is still the Winter Market. The vast majority of homeowners opt to “wait until the spring” to market their homes. Spring does not begin until Saturday, March 20th. Until then, there should not be the expectation of a bunch of new homes hitting the market. With demand so hot, many homes are not available to purchase because they are in escrow. With more escrow activity, the supply diminishes. Also, fewer homes came on the market in January compared to the 5-year average, 24% less, or 1,028 missing FOR-SALE signs. That is a lot of homes for a housing market starved for fresh inventory.
In breaking down the inventory by price range, the lack of available homes to purchase is fairly uniform across the board. There are 2,296 fewer homes on the market compared to last year. In fact, the current inventory is at 2,355 homes
the lowest level since tracking began in 2012 by far. There were 4,651 homes last year. In 2013, the hottest market prior to this year, there were 4,533 homes on the market, 2,178 more than today. To say that there are not enough available homes to satisfy current demand is an understatement. It is unprecedented.
In looking at demand levels by price range in San Diego County, demand is off by 21% for homes priced below $500,000, 137 fewer pending sales. Yet, it is important to note that there are 842 fewer available homes as well, 59% less. Demand for homes between $500,000 and $750,000 is up by 109, or 10%, and there are 598 fewer homes available to purchase, or 53% less than last year. Demand above $750,000 is considerably higher. For example, between $750,000 and $1 million, there are 41% more escrows compared to last year, an extra 160 pending sales. Match that up with 282 fewer available homes to purchase, 53%, and the range is nuclear hot.
Luxury homes continue to be extraordinarily hot as well. Demand for homes above $1.25 million is up 53% compared to last year, an extra 142 pending sales. With luxury inventory down by 36%, 447 fewer homes, and heightened demand, luxury is off to an incredible start this year.
A Tip to Sellers: The best strategy to obtain the top dollar for a home is to carefully price a home according to its Fair Market Value. This current market may be incredibly hot, especially below $1.25 million, that stretching the asking price and even overpricing a home may still result in eventually achieving the ultimate goal in selling; HOWEVER, it will be at the expense of leaving money on the table. Stretching the asking price and overpricing results in fewer offers to purchase and not being able to properly tap into the auction-like atmosphere in selling a home today. When a home is properly priced according to the most recent comparable and pending sales, taking into consideration the location, conditions, upgrades, and amenities, it will procure the most interest and the highest number of multiple offers possible. Pitting all of these offers against each other will instigate a bidding war where one buyer outbids the rest, often for higher than the asking price, and, in some cases, much higher.
Like a charity auction, there is a lot of buyer interest in today’s housing market. Paddles are eagerly raised one after the other in the form of offers to purchase. There is so much interest that the pseudo-auction atmosphere transforms into a bidding war. The value soars upward until a winning bidder is revealed. Wise sellers will take advantage of this market.