Housing Shortage Presents Challenges for Buyers
NEW YORK ( MainStreet) While the housing demand continues to outpace supply in various urban pockets around the U.S., potential homeowners are faced with competing bids from other buyers.
The pent-up demand has created bidding wars from New York to San Francisco, putting additional pressure on homebuyers, many who are buying their first home in an unprecedented climate.
Despite weaker job growth, there remains a shortage in housing supply to satisfy current demand, said Jeff Meyers, president of Meyers Research, a Beverly Hills, Calif. data provider for real estate. Job growth is expected to pick up throughout this year, which will only increase demand. Unemployment will finish at 6.4% in 2014, which will be its fourth consecutive year of improvement, according to a forecast from Zonda, a mobile application for the residential homebuilding industry.
While all local markets experience their own dynamics and quirks, areas such as San Mateo county in California have more demand for housing because of a strong job market and limited development activity compared to weak demand in Wayne County in Michigan due to poor labor market conditions and an embattled housing market, he said.
Consumers with extra cash have the upper hand in trying to win a bid, especially in markets such as Manhattan where demand for a two-to-three bedroom apartment has pushed prices up to the $1.5 million to $3 million range, said Kinnaird Fox, director of development at Fenwick Keats Real Estate in New York which specializes in residential properties.
"This fierce competition created bidding wars with nearly every new listing since the beginning of 2014," she said. "Cash rules for obvious reasons in a market like this."
The bidding war frenzy has turned off many qualified buyers who are wary of the increase in prices, Fox said.
"Despite what seems like a booming sellers' market, many qualified buyers may be looking, but choose not to jump in," she said. "With buyers losing out on their bids, buyer fatigue sets in and some withdraw from the market. One could say the lack of inventory masks the actual demand."
While some cities have a weak demand for housing, many have an even weaker supply, which yields in a housing shortage, said David Reiss, professor of law at Brooklyn Law School in New York.
"Some communities place severe restrictions on new housing construction so even modest upticks in demand can push rents and prices higher," he said.
Buyers should not forget the fundamental rule of real estate. Location can have far reaching effects, especially if you are moving a significant distance, said Reiss.
"Perhaps first and foremost, ask whether the house you are considering is the right one for your family," he said. "If the answer is yes, then you are probably on the right track because a house is first and foremost a home and secondly an investment."