Home buyers Jennifer Castillo, 28, and Justin Thornton, 29, are house hunting in Washington, D.C., but were discouraged by overpriced or frothy homes they encountered in their search, reports CNBC.
The couple said that the current market is overvalued by around 10 to 15 percent than the usual. "It's gone beyond sticker shock, because what it's actually listed for is not the price that the home actually sells for," complained Castillo. "People are outbidding us, offering much more [than] us."
Even the couple's real estate agent had something to say: "It's a bit overwhelming, as a seller you have to navigate though five, 10, 15 offers," said Sacha Moise of the Evers Real Estate. "Prices are so close now that you see bidding wars, and the appraisal contingency is kind of what can make or break that deal-whether the buyer has that cash to make up the balance."
This means that the bid price even goes over the appraisal value of the home, says CNBC.
A bank will only value that home based on its appraisal value. You can take out a loan only for that value. Let us say you offered a $1M bid for a house with an appraisal value of only $800, 000, then you have to shell out $200,000 more directly to the owner. The manner of payment may be in terms you and the owner have agreed upon.
CNBC notes that some housing markets begin to show unsustainable price increase, thus becoming overvalued like Las Vegas, Phoenix, Riverside, California, and Miami. It would be remembered that these same cities were examples of real estate markets that went from housing boom to bust in the last 10 years. These areas experienced great reduction in home prices, making their owners lost around more than half of their properties worth.
The main culprit behind the existence of such frothy homes is tight supply, according to Fitch Ratings' Director Stefan Hilts. "Now, these cities are back on the rise, with prices in each up more than 45 percent since the low reached in 2011. Significant numbers of underwater mortgages remain, holding down supply, and demand has been bolstered by outside investors. With these unique market pressures, all four have climbed near the top of the Sustainable Home Price (SHP) model's most overvalued city list," Fitch Ratings' Director Stefan Hilts wrote in a new report.
If we were to look back at RISMedia's published article on RealtyTrac's study of home prices outpacing wage growth in 76% of the U.S. from 2012 to 2014, with some states' home price-to-income ratio reported to be as much as 60 percent to more than 140 percent, it is an alarming scenario. As CNN states, "there can be too much of a good thing." This just makes our markets unaffordable.
This Spring selling season, home prices could continue to rise due to tight supply. Builders cannot also cope with the increasing demand as their hands are tied also with limited capital.
Sometimes, it is possible that during these times, sellers may be guided by their inner wisdom to not just think of a momentary gain.
