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New homebuyers getting priced out of housing markets - Apr. 3, 2014



NEW YORK (CNNMoney)

In big cities across the country, prospective home buyers are growing increasingly frustrated as rising home prices, tight inventory and stiff competition freeze them out of their local housing markets.

"Many big metros are incredibly hot sellers' markets right now," said Stan Humphries, chief economist for Zillow. Nationwide, home prices were up 13% in the 12 months through January, according to the S&P Case-Shiller Home Price Indices. But in cities like Las Vegas, San Francisco, San Diego, prices have climbed by as much as 20% or more.

Add to that the fact that mortgage rates have climbed by almost one percentage point to 4.3% over the past 12 months. That means a buyer who gets a $200,000, 30-year mortgage now with 20% down would pay $896 month, 25% more than what a borrower would pay a year ago.

Even those who have no problem affording a home on their own are having a hard time closing the deal.

Helen Cittadino bid $600,000 in cash on an 890 square-foot two-bedroom condo in Palo Alto, Calif. -- a $20,000 premium to the seller's $580,000 listing price. And she was still outmatched by a higher all-cash offer.

"What's crazy is how many people here are capable of putting in all-cash offers," said Cittadino.

Nationwide, about 35% of all offers were in cash in February, a nearly 30% increase from a year earlier, according to RealtyTrac.

In the Bay Area, the cash is coming from deep-pocketed tech workers. In New York, Wall Street workers, flush with bonus checks, and foreign buyers looking to park assets, are paying with cash. Meanwhile, South Americans have been buying up real estate in South Florida as a safe haven for their money. In February, more than 71% of sales in the Miami area were all-cash deals.

Zillow CEO: Hottest housing markets
All of these cash buyers are picking up what little housing there is available in these hot markets. New home construction is still well below normal levels, which has kept inventory tight.

Making matters worse: many prospective sellers are waiting to put their homes on the market for fear they won't be able to buy a home to move into.

As housing becomes more expensive some worrisome trends that occurred during the bubble years are re-emerging, said Humphries. These include a greater reliance on non-traditional financing, like low-downpayment loans and adjustable-rate mortgages, and a greater pressure to move further away from urban job centers in order to find affordable housing.

Jeff Cuthbertson and his wife have bid on more than a dozen homes in Austin, Texas over the past several years and have been outbid on every one.

"We have been priced out of the market -- literally," he said. "Now we are planning a move, probably to North Carolina or Tennessee." To top of page
 

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if people can't compete they need to GTFO. Im surprised this article didn't say that foreigners are out bidding hard working Americans. If someone's cash offer out bids your mortgage then you are doing something wrong
 

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if people can't compete they need to GTFO. Im surprised this article didn't say that foreigners are out bidding hard working Americans. If someone's cash offer out bids your mortgage then you are doing something wrong
It's just making the deal contingent upon getting a mortgage that causes the problem. Sellers don't need to take that risk with cash buyers, and there seems to be plenty of them out there.
 

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I own rental property, and even I think that home prices are getting outrageous in some areas. Far too many individuals making $30K annually are trying to place themselves into homes that are $200K, and on the other end of the equation, fewer budget-friendly homes are being built. It's like the Section 8 rental debacle--really a never-ending argument.
 

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I don't follow american realestate, but didn't you guys just have a hellofa crash? did prices rebound higher then previous? If so, who ever scooped in the down swing made out like a bandit!
 

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I don't follow american realestate, but didn't you guys just have a hellofa crash? did prices rebound higher then previous? If so, who ever scooped in the down swing made out like a bandit!
To answer your questions - Yes, Yes, and Yes ;)
 

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Yeah, here in Minneapolis that have taken a nice jump in the last year, but still not near mid-2000 levels.

Unfortunately we bought our first home in 2005...which sucks.

Luckily we moved and bought another nicer home last summer, right before the prices started jumping, and we were able to hang on to the first house and rent it out. So we can hopefully ride out the increasing market so we can sell that first home for a profit and not a loss.
 

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Really? In my area I have yet to see anything at 06-07 levels. It's definitely above 09-10 levels, but no where near where it was.
Where I am prices have exceeded pre-market crash. We are even starting to see some older listings that have been on the market for a bit raise their prices and sell. It's crazy. But it's different now - Buyers are being much smarter about their purchases. Before the crash buyers were fighting to get their hands on anything, now they are much more aware of what's a good buy. Also as the article mentions it's the cash buyers moving the market. Which on the plus side it means banks aren't making the crazy loans to people like they were in the past
 

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I was up 22% in 13 months on a new home in Royal Oak, MI (suburb of Detroit) and I'm in the midst of building another now. Based on my build price (note: I'm not self contracting) and the potential sales price/sq. ft. (which is up slightly from where I sold 4 months ago), I could easily grab another 13%-15% if I sold the day I close. What's crazy is tear-downs are 200%-250% of where they were 24 months ago, yet people are still fighting for them. Gotta be quick on the draw and sporting a decent wad of cash to play ball, but there's definitely some easy money to be made.
 

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This isn't nothing new , I bid and offered on more properties then I care to think about over last couple years looking for a home only to say f them and just bought a brand new built home
 

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Buying a house in Nevada early next year. Pricing is awesome over there in the Henderson area.
 

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vegas really ? Been there a few times, nice place to visit for a few days and that's all, couldn't imagine living there. People just seem miserable down there.
 

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Real estate in Houston, TX is definitely a sellers market. Just in the past 6 months I've seen huge price increases everywhere I look (20%+ easily, some places are doubling value in less than a year) and yet people are still buying. I don't know if its all cash offers or not, but almost all the places that are selling are new development townhomes and condo's from what I've seen.. Sure some of it is investors and whatnot, but some of these multi-million dollar places gaining "value" so quickly, I'm wondering if it wont fall off again (less violent as the last). Prices in the areas I'm looking have definitely exceeded "last crash" prices and the sentiment is buy/build.

That said, I regret not buying a few places I looked at back in December. At current prices, I'll wait and hope for some pullback/defaults on loans that people stretched themselves too thin on.. or look elsewhere altogether, I'm not married to this city :)
 

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vegas really ? Been there a few times, nice place to visit for a few days and that's all, couldn't imagine living there. People just seem miserable down there.
I don't want to move to Las Vegas. I want to move to Henderson. I am not into the parties and what not but its fun to visit. I am moving for work.
 
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Prices are rebounding too quick, the difference this time around is that most (not all) loans are under heavy regulation and non-traditional products (like interest only/balloon/option ARM) are falling by the wayside. I think prices will scale back a bit, but I don't think we're going to see momumental defaults like last time. A lot of it was caused by pricing shock when loans came due or adjusted. At the end of the day, people buying now are more bona fide borrowers than '05-09.

Also a lot of cash buyers, depending on the area. It's not easier access to credit that's causing the craze, it's lower rates and less inventory. The lack of inventory is two-fold, supply and demand obviously but also people are afraid that they won't be able to find a home when they sell their current, so they jump and overbid.


Even retail lenders that use their own capital are using guidelines similar to Qualified Mortgage, even though they technically don't need to.
 

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Texas in general is hot right now. The Midland / Odessa is absolutely insane right now because of the oil boom going on. Housing and rent prices are skyrocketing and dragging the price of everything else up with them.
 
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