By Allison McNeely
Erin Damato and her husband have been seriously looking for a home since last fall to accommodate their growing family, and they’re finding that nearly $1 million isn’t enough to meet their needs anywhere in New Jersey.
They bid $828,000 for a house listed last month for about $750,000 in West Orange, about 20 miles west of New York City, only to find out from their real estate agent that their offer was the sixth best of more than 20 received by the sellers. She estimates the home sold for close to $1 million.
“It’s been incredibly frustrating,” Damato, 35, said in an interview. “House prices have gone up about $100,000 since we’ve been looking.”
Losing out in a bidding war is par for the course in the hot U.S. housing market, where millennials starting families, remote workers with more flexibility, and the prospect of rising mortgage rates are fueling a buying frenzy. January was the most competitive month ever in the U.S., with about 70% of offers subject to bidding wars, up from about 60% a year earlier, according to listings firm Redfin Corp.
Damato and her husband are looking for more space to accommodate their growing family, which includes an 11-month-old baby and plans to have another. The lease on their three-bedroom apartment in Jersey City is up in November, and they’re looking for a little breathing room after a year of stepping on baby toys in the living room and having their car hit three times while parked on the street.
“I spend an hour looking every single day. I look all over New Jersey,” she said. “How are we ever going to find a house?”
Rising mortgage rates don’t seem to be deterring buyers amid a glut of all-cash offers. The average 30-year fixed mortgage rate was 3.92% during the week ended Feb. 17, up from a record low of 2.65% in early 2021. Mortgage rates are rising along with Treasury yields, as investors expect the Federal Reserve to respond to soaring inflation by hiking interest rates several times this year.
A $500,000 loan with a 30-year term now has a monthly payment of about $2,364, compared to $2,014 at last year’s low.
Home buyers are scrambling to find a place to live before it gets even more expensive, as mortgage rates are expected to keep going up, according to Redfin Chief Economist Daryl Fairweather.
“Rising mortgage rates are intensifying an already-severe shortage of homes for sale because buyers are feeling more urgency to buy while homeowners are feeling less urgency to sell — an imbalance that’s fueling an increase in competition,” he said in a statement.
Some buyers have managed to snag a house that was subject to a bidding war by using a combination of luck and creativity. Gianna Gordon, 55, bid $235,000 for a home in Atlanta listed at $215,000 and her bid was initially rejected in favor of one from an investor. She got lucky a few weeks later when the investor’s offer fell through, and the seller’s agent asked if she was still interested.
Gordon thinks that offering to pay $800 worth of relocation expenses for the seller, who was moving to Florida, helped seal the deal.
“You have to do a little bit extra to get the attention of the owner,” she said. Gordon bid on at least 10 houses before finally finding one.
Spokane, Washington; Sacramento, California; and Seattle have the highest bidding-war rates of 40 cities surveyed, with Spokane seeing bidding wars on 83.3% of offers in January, according to Redfin. Sacramento had competition on 80.4% of offers and Seattle saw competing bids on 79.7% of offers.
Nearly three-quarters of townhomes saw competing bids in January, followed by single-family homes at 70.6% and condos or co-ops at 62.9%, Redfin said.
More stories like this are available on bloomberg.com.