Bidding wars escalate as housing crunch worsens

Increasing mortgage rates will likely move some prospective buyers to the sidelines

Bidding wars escalate as housing crunch worsens

It is the most competitive time in history to buy a home, according to Redfin chief economist Daryl Fairweather.

Redfin reported that February saw the highest bidding war rate since April 2020 as rising mortgage rates and a worsening supply shortage continue to prompt bidding wars in several housing markets nationwide.

Nearly 69% of home offers written by Redfin agents faced bidding wars on a seasonally adjusted basis in February, up slightly from the revised rate of 68% in January and 60.2% a year ago. Unadjusted, the bidding-war rate was 71.4% last month.

“Bidding wars intensified this year after rates started spiking, which lit a fire under buyers,” Fairweather said. “Competition will likely plateau or even decline if rates keep increasing as expected. Monthly mortgage payments for new buyers are already at a record high. As they continue to creep up, some buyers will move to the sidelines.”

Read next: What is the impact of the Fed rate hike on home purchase sentiment?

El Paso, Texas, registered the highest bidding-war rate, with 87.5% of offers facing competition in February. Denver (83%), Minneapolis (81.1%), Raleigh (80%), and San Francisco/San Jose (79.9%) followed.

“Housing inventory in El Paso is ridiculously low - especially for new-construction homes,” said local Redfin real estate agent Salvador Palos. “Buyers here have always loved new, turn-key homes, and those are nearly impossible to find because builders are delayed due to supply-chain issues and labor shortages. A lot of homeowners are also staying put because they’re worried about finding their next home at a time when the economy is so uncertain. It’s not uncommon for newer homes to get 10 to 15 offers and sell for $20,000 over the asking price.”