By Amy Hoak
Here’s a sign of how tight inventory levels have been lately: More homes are selling in a flash—finding a buyer within 24 hours of being listed.
Angela Catanzaro thought so, too, until her Broward County, Fla., home received a written offer one day after their listing hit the Internet. The home she and her husband decided to buy was also on the market for less than a day; they pounced on it after struggling to find quality properties that didn’t “need work.”
They plan to close on both transactions this month.
“We weren’t anticipating our home to sell so fast, so we asked if it was OK to stay until June so our daughter could finish school,” Catanzaro said. The Catanzaros didn’t even use a real-estate agent to market their house. They simply posted it on Zillow, a real-estate website.
Glenn Kelman, chief executive of Seattle-based real-estate brokerage Redfin, calls quick transactions like these “flash sales,” and said there have been more of them since the beginning of the year. That’s due to low inventory in the most competitive markets, including Miami, Washington, D.C., San Francisco and Los Angeles.
San Jose, Calif., is also hot. It had less than one month’s worth of inventory in April, meaning that at the current pace of sales, it would take only a month to sell all the homes currently on the market. That made San Jose the tightest market of 22 analyzed by Redfin. There, 65% of homes were under contract in April within two weeks of being listed, while 20% were under contract after one week, according to Redfin data.
Over all 22 markets, the percentage of homes under contract within two weeks rose by 39% in April, compared with last year. Those under contract within one week rose by 54%.
Advances in technology, including mobile alerts for new listings, are also enabling these quick sales, Kelman said.
“People used to get the news about a new listing on Saturday morning and see it over the weekend,” he said. Now, websites including Redfin will send messages to mobile devices the moment a listing hits the market, and potential buyers can set up showings immediately, he added.
Granted, this kind of market speed isn’t everywhere. Few Midwestern towns and smaller markets, for example, will see many—if any—of these quick sales, said Michael Sklarz, president of Collateral Analytics, a company based in Honolulu that develops real-estate analytic tools for financial institutions.
“It’s the extreme, though there is more of it right now than there has been in years,” said Jed Kolko, chief economist for Trulia, a real-estate website, referring to the flash sale phenomenon. “When buyers find something they want, they are moving quickly—sometimes offering more than asking because there’s little to choose from, especially in markets that have seen big price increases lately.”
Despite the quickness with which they need to move and the extra they might have to pay, many buyers are often still getting bargains on the homes they decide to purchase, Sklarz said.
“In a lot of markets, we still have prices significantly below prices in 2005 and 2006. Even though there is competition for existing homes, in many cases they’re still getting good deals,” Sklarz said.
Why inventory is low
Nationally, inventory is down about 15% compared with this time last year, Kolko said. That’s because despite rising home prices, there are still many people who are underwater on their mortgages, meaning they owe more on their mortgage than their home is currently worth. They simply can’t afford to sell.
But there’s more to it than that.
“If it were just about negative equity, we would see more inventory on the market than a year ago,” he said, because fewer people are underwater today than last year. “Construction levels remain low, relative to normal, but the other factor is people don’t want to sell at the bottom.”
It’s hard to predict how long it will take for inventory to get back to normal levels, but continued rising home prices will help, encouraging more people to sell and spurring the building of new homes, Kolko said.
Home prices in March rose at the highest annual growth rate in seven years, according to the most recent S&P/Case-Shiller index. And sellers are starting to list for more. Asking prices were up 9.5% in May, compared with May 2012, according to a recent Trulia report. U.S. home-price growth fastest in nearly 7 years
“There was a time when sellers weren’t confident enough to test the end of the market. If they had equity to sell, they would underprice it to create a bidding war,” Kelman said. “Now, sellers say ‘I want as many people as possible to see the house, but I’m not willing to take an offer below this price.’”
If you’re a buyer
Those attempting to buy a home in a tight market should know exactly what they want before starting a house hunt. Know how much you’d be comfortable paying. Make a list of deal breakers that would take a home out of the running. Use a real-estate agent you trust.
That helps put you in a “perfectly neutral” position, Kelman said.
“If you win, you’re happy. If you lose, you’re happy…someone paid more than you were willing to pay,” he said.
Write to Amy Hoak at firstname.lastname@example.org