Pat Whyte has been selling homes in Madison for 35 years, and last year’s seller’s market was unprecedented for her. Homes sometimes received up to 20 offers, and unsuccessful offers at $25,000 above asking price were not uncommon.
“It's a crazy market,” she said last May. “(Houses are) flying off the market faster than I’ve ever seen.”
Until this year.
“It’s just as crazy, and if you’re a seller, it’s probably even a little bit better than it was a year ago,” said Matt Winzenried, a local broker associate who’s been working in the Madison area for 12 years.
Last year, Madison realtors described the frantic real estate market, and when the Cap Times checked back in with them last week, many said it's shaping up to be just as hot, if not hotter. In an unrelenting seller’s market with limited supply, realtors and buyers are getting creative to beat out the competition.
HOW HOT IS IT?
Like last year, houses can still be snatched up after just a day on the market. At this point, offering the listed price is not really an option for buyers.
“We have a little joke in our office that the asking price has become the suggested retail price — (it’s) not exactly the price you’re going to pay,” said Liz Lauer, a real estate broker and owner with 20 years of experience in Madison.
According to the South Central Wisconsin Multiple Listing Service Corporation, Dane County’s first quarter sales of homes and condominiums in 2018 were the highest ever. Even slightly rising interest rates haven’t seemed to slow sales, Winzenried said.
The median sale price for homes and condos in Dane County in March 2017 was $259,450. That was up to $272,000 in March 2018.
It’s a clear seller’s market, which Lauer said boils down to a lack of inventory.
A healthy, balanced housing market has 6 months' supply of inventory. Dane County housing inventory in March was at 1.25 months, even lower than last year’s 2.21 months.
Kevin King, executive vice president of the South Central Wisconsin MLS Corporation, said the main reason for the shortage is that building has not caught up after the recession. Permits for single family home construction in Madison have been ticking up for the last few years, but still aren't anywhere near the pre-recession boom in the early 2000s.
“(The builders) are not going to over-build or over-commit,” Lauer said. “They don’t want to go through the crash they went through before.”
Even though money spent on construction of single-family homes in Madison is higher than ever, it’s increasingly expensive to build homes, with nationwide competition for materials and labor shortages in skilled construction trades, said Matt Wachter, Madison’s manager of the office of real estate services. The cost of land, labor and lending is high, King said.
“From the builders’ standpoint, to make it economically feasible, they’re building at the higher end of the spectrum,” King said, and “not building anywhere near what we need to meet the entry-level and mid-level of housing. That’s not to say the builder's aren’t trying, they’re trying their darnedest. We're way behind in the recession and we’re just far from catching up."
Winzenried has started creating his own supply. He’ll reach out to neighbors if a buyer missed out on a neighboring property, saying “our buyers would love to be in the neighborhood. If you’re thinking about selling, please reach out.”
Most realtors prefer a more balanced market, Winzenried said, which ensures a fair price and adequate time to make a decision. As it is now, “buyers go to a open house on Sunday, have 20 minutes to see the house and (then) make a decision to spend $300,000.”
Lauer said it’s the strongest seller’s market she’s ever seen, including the pre-recession housing boom.
“In 2004, 2005, I never had 18 offers on one house,” she said.
But the buyer pool is strong as well. She’s seeing more dollars in the market than ever before, as well as a “different level of strategy.”
BUYERS THINKING OUTSIDE THE BOX
The winners in this market are the cash buyers, Whyte said, who “don't have a bank to make happy.”
“That’s so demoralizing for most of the buyers. They hate to be competing against cash buyers, but it’s happening quite a bit,” Whyte said.
Realtors are devising other strategies to beat out the competition. Buyers have to be “even more strategic than they were last year,” Winzenried said, and “be creative and think outside the box.”
That may include offering to cover the difference if the appraisal comes back lower than expected. Some buyers write offers that say if something comes up in inspection that will take less than a couple thousand dollars to fix, they’ll cover it themselves.
And never underestimate the power of a personal touch. Whyte and Winzenried have had buyers edge out higher offers by writing a personal letter to the owner. Whyte had a client beat out an offer that was $25,000 higher by writing a personal letter explaining “how much they loved the house and how they were going to use it in the future.”
Another tip: don’t assume that a house is too competitive to bother. Whyte has hosted open houses with 50 to 70 people, only to have no one make an offer the next day. She called a couple realtors afterward asking why, and they said their clients were afraid of a bidding war. That has also happened to Winzenried at a 70-person open house. It’s an exception, he said, but it does happen.
The market is particularly tough for first-time homebuyers, both because lower-priced houses get snatched up fast, and because they may not have the financial freedom to make strategic, competitive offers, like offering to cover the difference if an appraisal is low.
For some, rejection after rejection leads to buyer fatigue. Whyte and Winzenried have already seen a few clients stop searching for houses and decide to it wait out and save money for a bigger down payment.
“How many offers do you write? How many times do you go up to bat and feel like you’re not getting what you want?” Lauer said.
Beleaguered buyers may want to wait until late summer or early fall, Lauer said. There’s less inventory then, but there’s also less buyer competition.
Asked whether there’s any end to the seller’s market in sight, Lauer and King said they think it will take a couple of years to calm down. Lauer's wisdom for struggling buyers?
“Be patient,” Lauer said. “It’s going to happen. It’s one of those things where you just have to stay loose about the process.”