Home buyers in hot housing markets from San Francisco to Brooklyn have grown accustomed to bidding wars, waived home inspections, and rapid-fire offers. If you're house-hunting in Omaha, Neb., Grand Rapids, Mich., or Indianapolis, you might want to brace yourself for similar tactics. Those cities and several others saw sharp declines in the number of homes for sale over the year ending in February:
It's surprising to see Midwestern housing markets tightening this way. The large U.S. metropolitan areas with the sharpest population declines from 2014 to 2015 were concentrated in Ohio, Pennsylvania, and upstate New York, according to the Census Bureau's most recent population estimates.
But stricter lending standards since the housing bust have made cities with strong job growth and cheaper home prices particularly attractive to buyers, said Nela Richardson, chief economist of real estate brokerage Redfin. That may be leading to tighter housing supply in such cities as Omaha and Minneapolis.
“Before the bust, if I got a good job offer in Seattle, I’d move there. I’d just go and get a mortgage," Richardson said. "Now I don’t have flexibility to go where the pay is the most, so I have to go to a place that I can afford.”
In cities showing less robust job growth, the short supply of homes for sale might be explained by another factor: Prices in about half of the country's local markets are still below bubble-era peaks. Owners may be reluctant to sell their homes for less than they were once worth, especially if they owe more on their mortgage than they can get in a sale, said Jonathan Smoke, chief economist at Realtor.com. That limits the supply on the market. The inventory squeeze has proved especially harsh for first-time home buyers, in part because builders have prioritized luxury homes over starters.
A theory making the rounds at Redfin contends that trends in buyer behavior start out West and move eastward. In California, for example, parents are taking out home-equity loans on their own homes to help children muster all-cash offers on a property, Richardson said. Once the deed has transferred, the kids borrow against the home they just bought to repay their parents.
“As things become more competitive in the Midwest, you can expect to see some of the same things that buyers on the West Coast have been dealing with for a long time,” she said.
The country's most competitive housing markets remain in the West. Among the top 20 markets on Realtor.com's Hotness Index, which measures demand by the number of page views and supply by how long listings stay online, only three are east of the Mississippi: Boston, Raleigh, N.C., and Lafayette, Ind. A bidding war is going to cost a buyer less in Buffalo, N.Y. (median listing price: $137,000, per Redfin) than in San Francisco ($1 million), and the Rust Belt is less likely to see some of the more convoluted strategies employed in richer markets.
The Midwest is definitely getting hotter, and not just in climate.
"California has really been the standard-bearer and started this trend," Realtor.com's Smoke said. "But we're starting to see the same pattern emerge in more parts of the country."