Zillow is reporting this week that persistent U.S. home buyer demand, despite the Coronavirus outbreak, is pushing a strong housing market deeper into the year than usual.
In September, 22.4% of homes purchased in the U.S. were sold for more than their initial list price, up from 20.2% in August and well above the roughly 15% of homes that did so during September 2018 and 2019. It is highly unusual for the share of homes sold above list price to continue rising this late in the year. In both 2018 and 2019, the share peaked in July during the height of the typical home shopping season before steadily declining as the market cooled in the fall and winter months. This year, the share has increased each month.
Buyer demand has been intense and persistent since the market picked up speed in April after a dramatic slowdown in the early days of the coronavirus pandemic. Potential buyers may be feeling urgency to lock in low mortgage rates now, especially if they sense prices will slip further from reach in coming years. Many others may be taking advantage of new freedom to telecommute from an area where they can more easily afford a home.
Whatever the reason, strong demand is helping to keep a lid on inventory as homes are being snatched up faster than sellers are listing them. Inventory has continued to fall compared to last year -- down 37.4% year over year at the end of October -- even as new listings have returned near last year's level, an indication of heavy sales volume. Homes were typically selling after only 12 days, a full 17 days faster than the same time last year. Those market dynamics are likely pushing buyers to make offers above list price as they expect quick sales and competition from other buyers while choices are limited.
"The housing market is taking us all back to Economics 101 and teaching lessons about supply and demand," said Zillow senior economist Chris Glynn. "A persistent interest in buying and moving is creating an imbalance that is driving prices higher than we typically see at this time of year. In many cases, buyers in this market should be realistic about the chance of bidding wars and leave themselves financial flexibility by looking at homes listed for less than their maximum price point. With tight inventory, low interest rates, and robust demand from households re-evaluating their housing needs, a strong, competitive market with many transactions is likely here to stay into 2021."
Bidding wars have been most common for homes priced just above and below the typical U.S. home value of $259,906. Homes priced in the second quintile of all U.S. home listings -- between $192,001 and $264,000 -- sold above list in 28.2% of September sales. Homes in this price range are also selling incredibly quickly -- a recent Zillow analysis of time on market found similarly priced homes typically sold faster than any other price tier in September.
Homes priced in the most-expensive tier -- above $487,000 -- sold above list 15.7% of the time, the lowest of the five price bands tracked in Zillow's study. Still, this is the highest share sold above list in this price range in any month since at least January 2018, the earliest month included in the analysis.
Perhaps unsurprisingly, homes that sold in the shortest amount of time -- indicative of more-intense competition for these properties -- were more likely to sell above list. Of homes that have sold in 10 days or less since 2018, 28.5% sold above list. The longer homes stayed on the market, the less likely they were to sell above list. Even still, about 10.4% of homes during that time that stayed on the market for 60 days or longer before selling went for higher than their list price.
The share of homes sold above list is up from last month and higher than a year ago in each of the 50 largest U.S. metros, and has more than doubled in five of the top 50: Phoenix, San Diego, Denver, Virginia Beach and Riverside.
In today's competitive housing market, rushing into a home that's not the best fit and paying more than they can afford are two of the biggest risks that buyers face. Zillow experts recommend making a list of top criteria and trade-offs they're willing to make, using virtual or 3D Home tours to narrow down your options more quickly than waiting for a showing, and shopping for homes below a buyer's maximum price point to leave flexibility in case of a bidding war. A trusted local agent can help discuss trade-offs that may be necessary in a given market and help buyers understand what makes a winning offer in their area.