First State sees super-heated housing market
A year ago, just before the COVID pandemic lockdown began, the housing market in Delaware was heating up. Sellers in early 2020 often had their choice of offers.
One year later, despite the pandemic, the story remains the same. And contributor Eileen Dallabrida reports, if anything, the market is even hotter.
On a recent Thursday, Don and Michelle Elmore put their 1950s center-hall colonial in North Wilmington on the market. By Friday, 29 prospective buyers had lined up for showings.
Before the weekend ended, they had seven offers, all above the listing price. In a red-hot seller’s market, the Elmores were in the enviable position of choosing the best of numerous attractive offers.
“We went with the highest offer monetarily—and they also waived a home inspection, which made it even better,” Don says.
In a market in which would-be buyers far outnumber sellers, the competition for homes is fierce. Buyers are bidding up prices, waiving contingencies and sweetening the deal by picking up the tab for transfer taxes and closing costs. One buyer edged out the competition by offering to buy the entire contents of a home being sold by an estate.
“Remember last May when everyone was looking for toilet paper and couldn’t find it? That’s the housing market right now,” says Emma Payne, associate broker at the eXp Realty Delmarva Group.
The COVID-19 pandemic looms large in both shortages. But unlike toilet paper, consumers can’t stockpile homes. In New Castle County, the inventory of detached homes was down 43% in February, compared to the previous year, according to statistics from Patterson-Schwartz. In Kent County, the real estate firm Burns & Ellis had six listings last week instead of its typical roster of 25-30 homes.
"It's a challenge to get people to list. If they sell their house, where will they go?" Burns & Ellis REALTORS' Shalini Sawhney
It’s a textbook case of supply and demand. Buyers, many of them Millennials, are bursting at the seams as families vie for space for work, play, and remote schooling. Baby Boomers, a crucial source of listings, are sitting on the sidelines, reluctant to open their homes until the pandemic subsides.
“It’s a challenge to get people to list. If they sell their house, where will they go?” says Shalini Sawhney, of Burns & Ellis in Dover.
The overarching question is will prices continue to rise? Will the bubble burst? Or at least gently deflate?
Home prices up 13.6%
The Elmores already had their next home buttoned up, although they had not planned to move for a year or so. They are buying a house in Middletown owned by Don’s parents, who are downsizing to their beach house in Lewes.
In a seller’s market, they had a decided edge. Buyers were rhapsodic about the North Wilmington home’s classic masonry and ready access to Route 202 and Interstate-95. The open-concept kitchen and dining room drew rave reviews. Ditto for the first-floor den, just waiting to be converted into a home office.
"Remember last May when everyone was looking for toilet paper and couldn’t find it? That's the housing market right now." says eXp Realty Delmarva Group's Emma Payne.
"We moved up our timeframe, based on the way houses are selling and it turned out well for us,” Don says.
In New Castle County, the median home price is $263,000, up 13.6% compared to this time a year ago, according to Bright MLS. The median time on the market is a scant seven days. Real estate professionals say much of that time is consumed by paperwork. In reality, most properties are snapped up even before the For Sale sign goes up.
“Everything is going over listing price, by tens of thousands in some cases,” says Karen Burke of Patterson Schwartz in Hockessin. “A four-bedroom, two-and-a-half bath house in Hockessin will sell in one day.”
For some sellers, the sharp rise in prices presents an opportunity for a fresh start. In Rehoboth Beach, the owner of a bed-and-breakfast struggling to survive during the pandemic traded sleepless nights for a big pay day. The buyer, a developer, will tear down the property and build several beach homes on the lot. In Kent County, a couple whose small business went under sold their house for top dollar. The extra money is providing them with a cushion as they rent and rebuild their finances.
As the market heated up, Payne and her husband sold their home at a handsome profit, buying an RV with their windfall. These days, the associate broker often works remotely. On the day of her interview, she spoke poolside from Florida.
“The money we are making off our house allowed us to get off that grind and do only what we want,” she says.
In New Castle County, a landlord dinged by tenants who couldn’t pay during the pandemic is transitioning out of the rental business. He sold two townhouses, both to first-time buyers who will live in the properties. Overall, townhome sales are up 46.8%. in the county and 53.7% in Wilmington, fueled by buyers looking for affordable alternatives as home prices rise.
Tearing up the wish list
Burke says buyers are increasingly willing to compromise on such niceties as hardwood floors. But she is concerned that some are giving up too much in their zeal to win a home.
“Buyers are settling for things that they would not have looked at two years ago. A few years from now they might not be as happy about getting the house,” she says.
One of Payne’s clients, a single dad in Sussex County with two young children, whittled his wish list as prices went up. He started looking in Millsboro but couldn’t find a single-family home with a garage in his $225,000 budget. He also was near the bottom of the financing pecking order, approved for an FHA mortgage in a market where sellers are looking for buyers with big down payments and conventional loans.
"No home inspection, no contingency for termite inspection. Many are paying cash, so there are no worries about appraisals and financing." - Ocean Atlantic Sotheby's Kimberly Martin
Despite making multiple offers, he came up empty. He wound up buying a fixer-upper in Seaford, further off the beaten path.
“He had to give up a lot of his wants and needs. He had to move further away from work and the home wasn’t in the shape he wanted. He will have to build a garage later,” Payne says.
In coastal resort communities, out-of-state buyers flush with cash are looking for get-aways closer to home, says Kimberly Martin, of Ocean Atlantic Sotheby’s in Rehoboth.
“People used to fly to Florida for vacation. Now they want to drive to the beach from Baltimore because they don’t have to get on a plane,” she says.
She recently represented clients bidding on a “tiny, tiny” oceanfront townhome in Dewey Beach listed at $887,000.
“They were willing to go to $925,000—and they didn’t get it,” she says.
Some buyers are bidding more than $1 million on homes sight unseen, based on the location and videos Martin takes of the home and outdoor spaces. Home offices and private pools command a premium. Buyers also are offering to pony up for Delaware’s hefty 4% transfer tax, which is usually split 50/50 by buyer and seller.
“No home inspection, no contingency for termite inspection,” she says. “Many are paying cash, so there are no worries about appraisals and financing. Anything that makes the transaction move more smoothly.”
For buyers who do tour homes in person, social distancing and other COVID protocols are in place. Agents and clients arrive in separate cars. Everyone wears face coverings.
“We open closet doors for the clients so they can look inside, then wipe the doors down with Clorox wipes,” Martin says.
Even with precautions in place, the Elmores were nervous about the parade of strangers coming through their home.
“It’s like having a huge party at your house,” Don says. “The first thing we did when we came back was wipe down all the major touch points.”
There were so many prospective buyers for a four-bedroom, three-and-a-half bath home in Magnolia that agents reduced showings from 45 minutes to 15 minutes in order to get everyone in and out safely. With a finished basement, renovated kitchen and updated baths, buyers were willing to overlook its location on a busy road.
“By Sunday evening, we had 33 showings and six offers, all over asking,” Sawhney says.
The winners bid $335,000, $26,000 over the listing price. They cliched the deal by offering to buy the furniture so the sellers would not have to store it while they look for a new home.
The COVID ripple effect
So, where is this extra money coming from? Sawhney says many buyers beefed up their savings with money they would have spent on travel, vacations, shopping, and dining out in the days before the pandemic.
“We have one couple who wound up buying a house with the money after their big wedding got canceled,” Burke notes.
Cheap financing helped, too, but that is changing. After hitting a record low 2.85% in November, mortgage rates are inching up. The rate on a 30-year fixed loan has risen 30 basis points in the past month to 3.24%, a seven-month high.
"If you are paying these prices, be sure you want to stay in the house for a while." -Patterson Schwartz's Karen Burke
Meanwhile, disruptions in the supply chain caused by COVID work stoppages have sent the cost of materials soaring, pushing up prices on new construction. Lumber prices have surged more than 170% over the past year, tacking about $24,000 onto the cost of a new home. Concrete is more expensive. So are appliances.
In Lewes Crest, a new development, prices on just-built three-bedroom, two-and-a-half bath townhomes are up $59,990, from $344,900 to $404,890. That’s an increase of 17.4%.
Meanwhile, many sellers who have turned over their homes are making do while they look for a new place to live. A seller whose primary residence in New Castle County sold in the twinkling of an eye is working remotely from his beach house until he figures out what to do next. Other sellers are bunking with relatives or transitioning in short-term rentals.
Looking ahead, the future remains uncertain. Payne is concerned there will be an uptick in foreclosures in Sussex County, where people who work in the service sector have been hard hit by the pandemic.
“I think we are going to see a huge market for foreclosures because so many people are behind on their mortgage payments and won’t be able to pay when the state of emergency is lifted,” she says.
Martin sees some air coming out of prices when more sellers start listing. “Once we have more inventory, the prices will level out,” she says.
Sawhney expects Kent County will grow as a destination for out-of-state buyers who can work remotely and want more house for their money.
“The bubble will go down, but maybe not for another year,” she says.
Burke cautions clients not to get caught up in the frenzy of bidding wars and to take on only as much as their comfort level will allow.
“If you are paying these prices, be sure you want to stay in the house for a while,” she says.