Buyers' bidding wars put El Paso home sales prices at record highs
El Pasoan Victoria Aleman outbid 97 other buyers to get her first house in what’s become a very unusual real estate market.
She had to pay just over $20,000 more than the East Side home’s asking price, and several thousand dollars over the appraised value to win the bidding war for the home she instantly liked.
The process was nerve-racking, but worth it, said Aleman, 23.
The well-maintained, three-bedroom home on Nancy McDonald Drive, listed at $142,500, brought in 98 offers early this year.
“I think that’s the most offers anyone ever got on a house in El Paso,” said longtime real estate agent Geraldine Kriegbaum, who was the listing agent for the property. Several other offers came in after the offer deadline expired, she said.
That huge number of offers is unusual, but it’s not unusual for resale homes to get multiple offers and sell in a few days, or in some cases, a few hours, and over the listed price. That's because the inventory of homes for sale is at a historic low while low mortgage interest rates keep buyers interested, those in the industry report. The same scenario is being seen across Texas and the nation.
The median, or market midpoint, price of single-family homes sold in El Paso County increased more than $27,000 to a record $197,250 in May from March 2020, when the COVID-19 pandemic began, according to the latest data available from the Greater El Paso Association of Realtors. That’s a 16% increase. The data include resale homes and a portion of new home sales.
New home prices rising because of increased construction costs
New home prices also have increased substantially this year because of big increases in lumber and other construction costs, El Paso builders report.
Some builders have increased their home prices by $30,000 and more. Some have stopped accepting new contracts until construction costs become more stable. Some builders don't price a home until it's under construction to better determine costs, and some builders use a clause in contracts to pass price increases on to the buyer before their home is completed.
Eder Gallardo, vice president of Edward's Homes, a large El Paso builder, said the company is not currently taking new contracts unless a contract falls through on one of the 403 El Paso-area homes it already has sales contracts because of increasing construction costs. Company officials are considering putting cost increases into existing contracts because Edward's had losses on the last 20 to 25 sales closings, Gallardo said in late June.
The average sales price for an Edward's home increased about $30,000 so far this year compared to last year, he said.
The shortage of available new homes on the market has pushed some people into the resale market, and that's also contributed to the sales price escalation, several Realtors said.
Historic low levels of homes for sale are pushing home prices to historic highs in El Paso and in other metro areas in Texas and throughout the United States, said Luis Torres, research economist at the Texas A&M Real Estate Research Center.
“We’ve never seen this kind of market before” with such low inventories statewide and nationwide, Torres said. “It’s unusual because we are in a recession, in a pandemic, and housing sales are gangbusters.”
El Paso County had 768 homes on the market at the end of May, or about a month's worth of inventory, compared to 2,245 homes for sale at the end of March 2020, or about three months worth of inventory, Texas A&M data show.
The El Paso Realtors data show a larger inventory — 1,408 homes on the market in May, compared to 2,867 in March 2020.
Buyers' remorse didn't last long for first-time homebuyer
Aleman, in the market to buy a home for only a week or two, bought the first home she looked at early this year. That’s unusual because it often takes buyers several weeks, if not months, and several losing offers to finally figure out they will have to pay well above the asking price to get the house they want in this sellers’ market, said Argelia Bearden, owner of Dream Work Realty. She was Aleman’s buying agent.
Aleman said she was "a little bit anxious about paying the higher price. But I loved the house so much: I didn't want to lose it," she said.
"I had some buyer's remorse" for a short time, but once the house was furnished and some interior painting done, it "really felt like home," Aleman said.
It helps to have her own place because her job as a human resources business adviser for ADP shifted to home during the pandemic, she said. Aleman had been living with her grandmother.
Aleman is far from being an exception in this market. Bearden has sold many homes for well over the asking price, she said. For example, she sold a West Side home in June for $37,000 above the $314,990 list price, and it sold for cash to people moving from out of town, she said. It received 25 offers and sold in about two weeks, she said. That’s one of the larger offers over the list price that she's had, she said.
It's not unusual for Kreigbaum, a Realtor for Keller Williams Realty, to get 10 to 20 offers on a home she's listed for sale, but most get three to six offers, she said. And most sell for over the listed price, she said.
Homes sometimes selling over appraised values
The high offers can result in a home selling for more than the appraised value. That means buyers who are getting a mortgage loan and offering above the list price usually include a waiver, agreeing to fully or partially pay the gap between the appraised value and the selling price, said Patrick Tuttle, broker-owner of Legacy Real Estate Services.
Sometimes that's what a buyer has to do to get a home, Tuttle said.
"It's the competitiveness of the market right now," he said.
Laura Spears, a real estate agent for Exit East Realty, said she usually advises a buyer she represents to not pay over the appraisal. The buyer can end up owing more on the home than it's worth if they don't plan to keep the home for several years, she said.
Low mortgage interest rates, recently hovering just over 3%, have allowed many buyers to remain in the market even as prices escalate, economist Torres said.
“The profile of future and current homebuyers are not affected by the pandemic” because they are more educated, earn higher wages, and are in industries not affected by the pandemic, Torres said. Many of them were able to work from home, which prompted them to look for bigger homes, he said.
Many buyers also moved into Texas from other states, Torres noted. That’s something realtors have seen in the El Paso market.
If prices continue to escalate, some people will be priced out of the market, Torres said. That will weaken demand, which slows down home prices – something that's likely to happen later this year, Torres said.
“It’s not going to be a crash,” he added.
“El Paso has a bigger affordability issue because family incomes are not as high as in other (large) metro areas in Texas,” said Torres, who lived in El Paso and Juárez when he was growing up.