The pandemic and high unemployment rate haven’t slowed the housing market. With home buyers facing heightened competition this summer for a limited number of homes for sale, some have decided to try to gain an edge by waiving contingencies to make their offers more competitive.
With tight housing inventory and record low interest rates, home buyers are waiving contingencies to make their offers more attractive to home sellers. The inspection contingency allows the buyer to cancel a purchase or request repairs during the inspection period. The appraisal contingency allows buyers to cancel a deal or renegotiate the price if the appraisal comes back lower than the specified amount. Both an inspection and appraisal contingency are used in offers to protect home buyers in a transaction.
After the housing market nearly shut down in April, competition is back with a fury.
States are loosening social distancing restrictions and homebuyers are rushing to open houses again. The trouble is, they’re not finding much to buy.
The coronavirus pandemic caused a historic drop in the supply of homes for sale that was already pretty meager. New listings had dropped by half during the second weak of April, compared with a year ago, according to real estate brokerage Redfin. Weak supply and growing demand is now causing a surge in bidding wars, especially for homes priced below $1 million.
More than 41% of homes faced a bidding war in the four weeks ending May 10, according to Redfin. That’s up from just 9% in January, before the pandemic hit the U.S.
“Demand for homes has picked back up after hitting rock bottom in April, and that uptick paired with a lack of supply is a recipe for bidding wars,” said Redfin lead economist Taylor Marr. “Homebuyers are getting back out there, searching for more space as they realize using their home as an office and school may become the norm.”
Sellers, however, are not rushing back into the market. Some are concerned about the economy, while others just don’t want people coming through to tour their homes.
“There’s more buyer activity on our site, as defined by engagement with our agents around homes that they’re looking at, than there are new listings coming on our site, as defined by new listing inventory in the market,” Robert Reffkin, CEO of real estate brokerage Compass, said on CNBC’s “Squawk Alley.”
New listings were down 29% annually for the week ending May 9, according to realtor.com, and while that is an improvement over previous weeks, it is still slow progress.