Buyers face housing shortage
While the housing demand continues to outpace supply in various urban pockets around the U.S., potential homeowners are faced with competing bids from other buyers.
While the housing demand continues to outpace supply in various urban pockets around the U.S., potential homeowners are faced with competing bids from other buyers.
 The pent-up demand has created bidding wars from New York to San Francisco, putting additional pressure on homebuyers, many who are buying their first home in an unprecedented climate.
 Despite weaker job growth, there remains a shortage in housing supply to satisfy current demand, said Jeff Meyers, president of Meyers Research, a Beverly Hills, Calif., data provider for real estate. Job growth is expected to pick up throughout this year, which will only increase demand.
Unemployment will finish at 6.4 percent  in 2014, which will be its fourth consecutive year of improvement, according to a forecast from Zonda, a mobile application for the residential homebuilding industry.
 While all local markets experience their own dynamics and quirks, areas such as San Mateo County in California have more demand for housing because of a strong job market and limited development activity compared to weak demand in Wayne County in Michigan because of poor labor-market conditions and an embattled housing market, Meyers said.
Consumers with extra cash have the upper hand in trying to win a bid, especially in markets such as Manhattan where demand for a two-to-three bedroom apartment has pushed prices up to the $1.5 million to $3 million range, said Kinnaird Fox, director of development at Fenwick Keats Real Estate in New York which specializes in residential properties.
 "This fierce competition created bidding wars with nearly every new listing since the beginning of 2014," she said. "Cash rules for obvious reasons in a market like this."
 The bidding-war frenzy has turned off many qualified buyers who are wary of the increase in prices, Fox said.
"Despite what seems like a booming sellers' market, many qualified buyers may be looking, but choose not to jump in," she said. "With buyers losing out on their bids, buyer fatigue sets in and some withdraw from the market. One could say the lack of inventory masks the actual demand."
 While some cities have a weak demand for housing, many have an even weaker supply, which yields in a housing shortage, said David Reiss, professor of law at Brooklyn Law School in New York.
 "Some communities place severe restrictions on new housing construction so even modest upticks in demand can push rents and prices higher," he said.
 Buyers should not forget the fundamental rule of real estate. Location can have far reaching effects, especially if you are moving a significant distance, Reiss said.
"Perhaps first and foremost, ask whether the house you are considering is the right one for your family," he said. "If the answer is yes, then you are probably on the right track because a house is first and foremost a home and secondly an investment."
 Potential homebuyers are facing a different set of rules with this current market and need to not only be prequalified for a mortgage, but also ready to make a quick decision if the right home comes up for sale, said Atlanta real estate agent Bill Golden, who has been in the real estate business 26 years. Consumers also need to be ready to pay more than the asking price in order to snag the home they are seeking.
 "It sometimes means paying full price or above, which buyers should not be hung up on unless the home is overpriced," he said. "A good buyer's agent should be able to advise a client about the true value of a home they are interested in. A good buyer's agent will also use creative means of finding homes that are not necessarily on the market yet, mostly through good networking among agents or other spheres of influence."
 While this sounds like good news for sellers, it can be frustrating for them as well, Golden said.
Once owners sell their home quickly, they often can't find another home, resulting in somewhat of a Catch-22 situation.
 "Sellers are afraid to put their home on the market for fear of not being able to find something else to buy," Golden said. "That further contributes to the shortage of homes for sale and the cycle goes on in an endless loop."
Homebuilders have been cautious about how much the housing market will rebound and have limited construction to "just in time," said Hollis Greenlaw, CEO of United Development Funding, a Dallas firm which invests in the construction of new single-family homes.
 "There have not been a great amount of speculative home starts by homebuilders," he said. "Homebuilders have been starting homes only where there has been a ready, willing and able home buyer."
 Consumers who want to buy a home now are faced with the reality of having to pay more for house or compromising for a smaller home, different neighborhood or fewer amenities, Greenlaw said.
While Texas has demonstrated strong job creation and wage inflation already, Florida and North and South Carolina are only a year or two behind, he said.
 "Consumers feel better in Texas than in other parts of the country and they are buying homes," Greenlaw said. "Those houses are rising in price because they can because people have jobs and an affordable lifestyle. It is a positive loop."
 Opportunities to buy a home increase in the fall, because buyers tend to purchase a home during the summer before school starts. The housing market has proved that this general rule of thumb to be wrong in many cities because the supply has dipped since homebuilders are not building additional inventory, he said.
"The opportunities in late summer and fall are not as great as they have been in more robust economic times," Greenlaw said.
 Buyers who opt out of the bidding wars should expand their search to include the suburbs and look at condos and town homes in addition to single family homes, said Nitin Shingate, CEO of RentalRoost, a Pleasanton, Calif., real estate website which combines data from listings, government records and social media sites.
 "You might surprise yourself at the new options that open up," he said.
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