October 28th, 2011 8:07 AM by Lehel S.
Jessica Harrison thought she knew what to expect when she decided to look for a house: a buyer's market.
And why not? Prices in Minneapolis, as in much of the country, are down sharply since 2009. And with so many foreclosed properties for sale, Harrison was certain she would find a good deal fast.
Instead, the Minneapolis teacher waded through countless homes during what became a two-year search. Most needed too much work. When she found a move-in-ready house, she lost out to bids she couldn't match. Harrison tried to buy a home through a short sale, too, but the deal fell through after six months.
She finally reached a deal on a tidy house in south Minneapolis and expects to close at the end of this month.
"There were multiple properties available, but I wanted to get a house that I could move into," Harrison said. "A lot of the houses needed a lot of work, and I didn't have the money or resources to do that."
Homebuyers no longer can assume that it's easy to buy a cheap house in a good location. Make no mistake: There are still more sellers than buyers. But the decline in listings and the quality of the options are slowing the search for those on the hunt, as would-be sellers hold on to their homes until the market improves. U.S. home listings in September fell to a four-year low, according to Realtor.com.
"(Buyers) have to be patient until the right home comes along," said Ryan Haagenson, a sales agent with Re/Max Results in Minneapolis. "And ready to pull the trigger when it does."
Homebuyers can run into complications during their search in other ways. Often, they may come across houses that appear available but already have an offer. When an offer is made on a house that is foreclosed or going through a short sale, a third-party approval is required, usually a bank.
In those cases, the agent isn't required to change the status of the listing from active to pending.
During a recent house hunt for a client, Sarah Fischer Johnson, a sales agent with Edina Realty, found 28 three-bedroom townhouses in Shakopee, Minn. They were priced from $250,000 to $350,000, but nine already had offers awaiting lender approval.
"The data would lead any buyer to believe that it's a buyer's market," she said. "No, and that's the sad part."
She recently had clients who were relocating from Pennsylvania, but couldn't find a house that met their needs, so they're now living in a corporate rental while they shop. Even Fischer Johnson and her husband have been stymied in their own search for a house. They have been shopping for an updated rambler in Minnetonka, Minn., priced from $650,000 to $850,000, to no avail.
Barb Duthler, a sales agent with Re/Max, said the primary problem in the market is that prospective sellers aren't listing because they owe more than the house is worth. This points to deeper trouble in the market, said Jeanne Boeh, an economics professor at Augsburg College.
"The average person who doesn't have to sell is looking at it this way: If I don't have to sell, why would I?"
That means there could be a significant backlog of inventory that will hit the market once prices rise. But that won't happen until demand exceeds supply, an important first step toward price recovery.
Wayne Hartmann and his wife never thought they'd have trouble finding a decent house in Minneapolis' western suburbs for $500,000, but about a quarter of all the houses they saw were foreclosures or short sales in terrible condition. They eventually made an offer on a short sale in December. The homeowner agreed to the deal, but it fell apart after never getting a response from the lender.
Not wanting to risk losing out on record low mortgage rates, they ended up spending about $200,000 more than they planned to get the house they wanted.
The good news: Hartmann got the lowest rate he's had.
"I almost can't believe it," said Hartmann. "But it is a frustrating market from a buyer's perspective to wade through all of the turmoil that's out there."
'WHERE ARE THE DEALS?'
New listings are down.Many short sales and foreclosures that appear to be available really aren't.Many homeowners aren't listing their house for sale because they owe more than it's worth.Investor demand is at historic highs.