A Neutral Place In The Bidding Wars

If, like us, you aren’t in the market for a house right now, consider yourself lucky. The real estate market is crazy right now — so crazy that bidding wars for homes are commonplace. It’s not just a seller’s market, or even a seller’s market on steroids. It’s more like a seller’s fantasyland where any imaginable price or egregiously unreasonable condition can be put on a house and some desperate soul will accept it just to get their foot in the door. If you know anyone trying to buy a house right now, you’ve heard ridiculous stories of some listings getting more than 30 offers and selling for prices more than a third above the asking price.

This CNBC article sketches out some of the macroeconomic indicators at play. The number of houses listed for sale has fallen to a record low. More than half of all prospective home buyers are facing bidding wars for the house of their choice, and the primary reason people who are in the market for a new house haven’t bought a home already is that they’ve been repeatedly outbid. More than half of new homes offered for sale are in contract in less than two weeks.

And here’s another sign of a superheated real estate market: a Google search for bidding wars will call up multiple website pieces advising on tips and strategies on how to win the inevitable bidding wars, like “11 Tips To Win A Bidding War On A House” or “Best Strategies To Win A Bidding War.” What are some of the strategies? Stay on top of the market in your target area and go see new listings the minute they appear. Pay cash if you can, or be pre-approved for financing, so you aren’t requesting financing contingencies. Offer more — sometimes far more — than the asking price. Agree to quick closings. And if it’s a house you really, really like, be prepared to waive the home inspection contingency, take the place as is, and hope that such a decision made in a crazy market doesn’t come back to bite you when you discover a new roof is needed immediately. Anybody who has bought a house knows just how risky that last strategy can be.

Those of us who are in the Switzerland position in the bidding wars — that is, neither buying nor selling right now — can view all of this with academic interest, but if you are a first-time home buyer this craziness has to be incredibly frustrating. Those of us who have homes can hope that the superheated market continues until we sell, but unless you’re moving into an apartment or an old age home, you’ll be a happy seller on one hand and a frustrated potential buyer on the other. I’d rather see things get back to normal.

Boom And Bust

The New York Times is reporting that the market for high-end real estate in Manhattan may have finally hit the wall.  Developers who are targeting buyers willing to pay more than $10 million for condominiums and apartments — and in some cases more than $100 million — are having to cut prices and repackage their products.

promo-01Even with the changes to meet falling demand in the market, the prices being asked for high-end New York City real estate are beyond the comprehension of everyday people.  For example, a skyscraper at 432 Park Avenue was asking $78 million to $85 million for full-floor apartments; now the units have been divided and are being priced for around $40 million.  Some poor schmucks who are trying to sell properties they bought during the boom are even listing their units for less than the purchase price they paid.  One seller has listed a three-bedroom apartment they bought for $31.67 million in 2014 for the bargain-basement price of $29.95 million.  (Incidentally, isn’t it heart-warming to see that, even at these astronomical numbers, the notion still holds that pricing just a bit less than the next whole number might cause some potential buyers to bite?  Whether it’s $299,500 or $29.95 million, the rules apparently don’t change.)

Why has the market for ultra high-end properties topped out?  Some developers blame uncertainties created by Brexit, some cite Chinese restrictions on cash leaving the country, some point to lower oil prices curbing spending by the sheiks and sultans, and some note that the U.S. government has started to pay attention to people paying cash — cash! — for these pleasure domes.  Note that most of these reasons implicitly acknowledge that a lot of the buyers for Manhattan glitter palaces come from overseas.  Others involved in the business identify more conventional reasons:  real-estate developers have saturated what was always a small market to begin with, there’s little to differentiate the properties, and pricing just hit a ceiling.  In short, the laws of supply and demand still hold, and there are only so many jet-setters in the world who can comfortably drop between $50 and $100 million on living space they probably only use once in a while.

Fortunately for those of us worried about the financial health of Manhattan, the Times reports that the real estate market in lower price ranges remains robust, with lots of competition for homes selling for less than $3 million.  Less than $3 million?  In Manhattan?  What does that get you — a one-bedroom efficiency on the lower East side?