This house just got 25 offers. But, yes, the market is still cooling

 (CNN) — When Minneapolis real estate agent Darisha Hill listed a three-bedroom, one-bath, 1924 bungalow on a Friday afternoon at the end of April, she scheduled open houses for both Saturday and Sunday to attract buyers.

By Saturday evening the homeowners had received so many offers — a total of 25 bids, all of them over the $320,000 list price — that they canceled the second open house. Within 48 hours the sellers were in contract with a buyer offering well over the asking price.

“We thought we’d get offers,” said Hill, who is with RE/MAX Results. “But 25? We didn’t expect that!”

If the housing market is cooling — and it is, with home sales down 22% in March from last year and median prices lower than they were a year ago as a result of mortgage rates that more than doubled throughout 2022 — why does the market still feel frenzied for so many buyers?

“It is the low inventory,” said Hill. Even though fewer people are buying homes now than a year ago, “we still have more buyers in the market than we have inventory. It makes for a bidding war,” she told CNN.

Not every home is going to a winner who rises out of a scrum — overall time on the market has lengthened from 17 days a year ago to 29 days in March. But that month, according to the National Association of Realtors, 28% of homes sold for above the list price, which is a proxy for a bidding war.

Hill is doing her part to drum up more inventory.

Around the Hiawatha neighborhood where this home was listed, Hill is sending out fliers telling other homeowners about it and reminding them that 24 unsuccessful buyers were prepared to pay over the asking price to live in their neighborhood. She ends with a call to action: Are you interested in selling your home?

Buyers not feeling the cooling

In spring of 2021, with mortgage rates around 3% and people making moves amid the pandemic, the real estate market was white hot.

Competition for a home was so insane that one homeowner saw 76 all-cash offers on their house and buyers were paying $1 million over the asking price, with some throwing in sweeteners like vacations in the Caribbean to get a house.

But it isn’t 2021, mortgage rates are now over 6%. The market is cooler now. Right? Properties are staying on the market longer, allowing buyers to take a beat and think, right?

Peggy Shea, an agent at Keller Williams NY Realty in Westchester County, a suburb of New York City, said: “Not here!”

In her market, sellers just aren’t coming to market and the demand for the houses that are available is pushing prices from $50,000 to $200,000 over the asking price. In Rye, New York, she said, one property sold for $600,000 over the asking price.

Some properties are being listed intentionally low, she said, and that can bring on a bidding war. But that can also confuse would-be buyers and force them to pull out of bids if what they thought they could afford to pay for the house changes amid volatile mortgage rates.

“We just had a class on it,” she said. “How to help buyers who are losing bids.”

Home buyers, already battle scarred by the worst home affordability in decades, are getting hit with a double whammy: Not only are they facing higher interest rates than a year ago, but inventory is so scarce they have to bid even higher to compete with other buyers.

Mortgage rates are now nearly a percentage point and a half higher than they were a year ago, after a historic climb over the past year following the Federal Reserve’s effort to rein in inflation. That surge significantly changed the monthly cost of owning a home and pushed many buyers out of the market.

Typically, when demand drops, supply goes up. But that’s not happening in the housing market now. Many homeowners are reluctant to give up their ultra-low interest rates and aren’t putting their homes on the market.

The inventory of all homes for sale in April, while higher than last year, is still well below pre-pandemic levels, according to Realtor.com. But the number of newly listed homes — those just coming to market — is down by 21.3% from a year ago.

Shea said she could see this competitive market shaping up in February when she held an open house for a three-bedroom, 1958 ranch home in Pleasantville, New York, and 100 people showed up. That home ultimately sold for $75,000 over the asking price.

“That buyer had been outbid on five properties before that, and said, ‘We are going in strong,'” Shea recalled. “People who are just starting to look may say, ‘The market isn’t what it was, you should be able to get something off this price,’ and we’re like ‘No. Not here.’ They lose a few. It hurts. And they catch on.”

Not all markets are blazing

While buyers in some parts of the country are facing nothing but bidding wars, in other places buyers aren’t feeling the same pressure.

While prices of single-family existing homes in the first quarter climbed in a majority of cities from a year ago — they went up in 70% of cities, or 152 out of 221 — that leaves about 69 areas where prices aren’t going up. The national median price for a single-family home dropped by 0.2% in the first quarter from one year ago to $371,200.

Affordability has worsened from last year, with the monthly mortgage payment now $1,859 for a typical existing single-family home with a 20% down payment. That’s up 33% from a year ago.

“Generally speaking, home prices are lower in expensive markets and higher in affordable markets, implying greater mortgage rate sensitivity for high-priced homes,” said Lawrence Yun, NAR’s chief economist.

Cities in the West, like San Francisco and San Jose in California; and Reno, Nevada, saw home prices drop by at least 10% from a year ago, while prices rose by at least 10% from the previous year in cities like Milwaukee; Dayton, Ohio; and Oklahoma City.

“Home prices are also lower in cities that previously experienced rapid price gains,” Yun added. “For example, home prices grew an astonishing 67% in three years in Boise City and Austin through 2022. The latest price reductions in these areas have improved housing affordability and led to some buyers returning, given the sustained, rapid job creation in their respective markets.”

Prices in Austin, Texas, during the first quarter were down 13.5% from last year. In Boise, Idaho, they were down 10.3% and in Phoenix they were down 7.3%.

But these cooling parts of the country could soon go the way of bidding wars.

“Due to the intense housing inventory shortage, multiple offers are returning, especially on affordable homes,” Yun said. “Price declines could be short-lived.”