What's 'in,' what's 'out,' and what to expect -2-

"I'm fortunate to be able to work remotely, and when I can, go down to our offices," French, who works in the aviation industry, said. But the commute adds up: it costs him $10 in gas, $10 in tolls, and is 45 minutes each way. "I don't go in every day, let's just put it that way," French said.

In Palm Beach, Sean Balsiger was also weighing options outside of his preferred area. There are homes 45 minutes away from where he was hoping to buy that could work for him and his wife, Balsiger said, but "I don't know if it makes sense for us to have that much of a commute."

With Matt McKee, an Orlando-based real-estate agent with Compass Florida, French has attended between 10 and 12 open houses, but hasn't found anything yet that was worth submitting an offer for.

McKee said out of the nearly three decades he's been in the business, he's mostly worked with an even split between buyers and sellers. While volume has been higher this year as compared to 2023, two-thirds of his business is from home buyers. "That just shows you the imbalance," he added. "There are just way too many buyers."

For his part, French is willing to test his patience. "We haven't found Goldilocks yet. It's either too big, or too small, or not the right neighborhood, or needs work," he said.

The home needs to be big enough to hold a family of two parents and three kids, but not so big that "my wife and I feel like we're lost in it when we're empty nesting," French said.

Not to mention that the family needs a big enough driveway to park the four cars they own. "We will need the ability to park four cars in some way, shape, or form, so we need to make sure we get enough driveway space," he added. "We play musical cars a lot."

What's in: Bidding wars (sorry)

As inventory remains lower than normal, or at least lower than it was before the pandemic disrupted the real-estate market, be prepared for multiple offers chasing one home, agents said.

In Palm Beach, Nicole Stanbra, a real-estate agent with REAL Broker, said that homes under $600,000 are flying off the shelves.

At that price range, "we're still seeing multiple offers, and it is still very competitive," Stanbra said. "If it's a great home and it goes to the market, it can be gone that weekend."

Balsiger, her buyer, submitted one offer on the first trip he made to Palm Beach to look at homes. He was outbid by a cash buyer. Balsiger said he would consider renting while continuing to search for homes, given how tough the market is for buyers with his budget and preferred choice of neighborhood.

Toltzis, the Atlanta broker, said that if a good home hits the market for under $1 million in the right neighborhood, it's gone within 72 hours.

Bidding wars are also back in Cassity's neck of the woods in San Diego. "We're gonna have a year that mirrors 2021, which was, give up your firstborn to get a single-family home," he said.

What's in: Finding homes off the market

One of the strategies that has been paying off for Cassity, the San Diego real-estate agent, is to target homes that are off the market, as in homes that haven't even been listed yet. He's been using this tactic to find homes for some of his home buyer clients.

Some real-estate agents and companies find these homes by targeting neighborhoods or homeowners who might have a higher propensity to sell, such as older homeowners who may be empty nesters looking to downsize. Agents will reach out to these homeowners through mailers, calls, texts, or even through targeted social media advertising, to build a relationship. When the homeowner decides to sell, they can turn to that agent, who can give their clients an early look before the house is widely listed. That way, "we don't have to get into that competitive situation," Cassity said.

In Palm Beach, about 20% of Stanbra's business in 2023 was off market, she said.

What's out: Waiting for mortgage rates to fall

Buyers on the market today must swallow any hesitations they have with 7% mortgage rates. And they're showing some signs of doing so, as seen in the recent mortgage application data, where the share of Federal Housing Administration loans ticked up, which means that first-time home buyers were actively looking for homes.

With significant pent-up demand for homes, one economist has a word of advice for buyers: "If you hold out for a lower mortgage rate, know that home prices are going to keep going up in most markets," Lisa Sturtevant, chief economist at Bright MLS, said in a statement.

What's out: Lock-in effect

While it is still too early to tell if the lock-in effect is fading, the increase in home listings in February is an optimistic sign, agents said.

Consider Balsiger's case: Back in Oregon, his home has a 30-year mortgage rate of 3%. Buying a home in Palm Beach would hence be a stretch. "It's going to be nearly double what we're currently paying for the mortgage," he said.

But that doesn't mean buying a new place was off the table. Buying a million-dollar home with a 30-year mortgage rate of 7% would mean that "we absolutely love it," Balsiger said.

For sellers who are in a similar position, there is some comfort in knowing that the market is in their favor. "It's still a seller's market," Cassity, the San Diego broker, said. In his market, sellers aren't making as many concessions to try to lure buyers as they were a year ago, and it's just as competitive as it was in 2021.

What's out: Sticker shock

Buyers in this market are a lot more financially prepared for a fight than they were before, Cassity said.

After going through the ringer with multiple offers that were rejected by sellers over six months, one of his buyers offered to put down half of a home's sale price, rolling over the proceeds from the sale of a previous home. "So even though the interest rate was high, the payment wasn't too bad, because he's putting down so much," Cassity said.

Buyers are also adjusting their expectations about prices. Buying a million-dollar home "a couple years ago was a hard pill to swallow, but now it's the norm," Stanbra noted.

The share of homes in the U.S. that are worth more than $1 million dollars grew from 9.3% of active listings in 2018 to 15.6% of for-sale inventory in 2023, according to data from Realtor.com provided to MarketWatch.

What's out: Dreaming of a housing crash

And what's definitely off the table in 2024 is a housing crash, experts said.

Despite home foreclosure activity rising in January, it's not at a worrying level just yet, First American's Mark Fleming previously told MarketWatch.

Even though some homeowners cannot make their mortgage payments, it's not at a level where people are losing their home, he added.

Delinquency rates are expected to remain low for the time being, according to a report by right-leaning think tank American Enterprise Institute. That's partly due to a new loss mitigation option introduced by the Federal Housing Administration.

"However, these policies may have unintended consequences, including postponing losses to a future date, by which time they might have grown substantially," they added.

And don't expect home prices to ease up either, one economist advised.

"Despite numerous speculations of significant home price declines in light of higher mortgage rates and significant affordability challenges, home prices continue to grow and recorded an overall 4% increase in 2023," Selma Hepp, chief economist at CoreLogic, told MarketWatch.

"The lack of existing homes for sale has provided a floor under home prices which have not fallen as a result in most markets," she added.

And with mortgage rates expected to fall, like Sturtevant, Hepp also believes that more buyers - and increased competition - will prevent home prices from falling.

CoreLogic is forecasting that home prices will grow 3% in 2024, with some markets seeing double that rate of growth.

How have housing prices affected your life and how you think about the U.S. economy? Let us know at readerstories@marketwatch.com. One of our reporters might reach out to you to learn more.

-Aarthi Swaminathan

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03-12-24 1322ET

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