In a market where properties are selling for $620,000 more than they are worth, how buyers are winning bidding wars

In 2021, Danine Alati and Juan Parra were one of eighteen purchasers who filed an offer on their first house in Verona, New Jersey. After winning the bidding war, they packed up and moved in.

Four years later, they were once more searching for a house in Brooklyn, New York’s Park Slope. Offering $56,000 more than the asking price, they attempted to win another bidding war even though they weren’t sure they could. The couple’s plan paid well, and they were awarded the house.

The reality that many homebuyers in some Northeast regions are dealing with is illustrated by Alati and Parra’s experience with two bidding wars that occurred during and after the COVID-19 pandemic. Even though the Northeast has some of the most costly real estate markets in the country, buyers are still making aggressive offers despite the region’s higher mortgage rates and pricier price tags.

In other words, even while the U.S. real estate market has been weak generally, with home sales falling to a 30-year low in 2024, bidding wars from the pandemic era have never really disappeared in these markets.

Renters and homeowners in New York City sought safety in the suburbs during the pandemic, purchasing properties in Connecticut, New Jersey, or the upscale upstate regions. Ultralow mortgage rates contributed to these sales.

Even with the 30-year rate at 7%, purchasers in the Northeast are now once again searching in large cities. However, they are up against a steep hill.

According to Jennifer Leahy, a real estate agent with Compass (COMP) in Connecticut, “it’s gotten worse because we have no inventory,” she told MarketWatch. Inventory has been tied up because homeowners are hesitant to sell and abandon their ultralow rates. According to data from the real estate company Redfin (RDFN), there were roughly 6,900 homes for sale in Connecticut in January, a 13% decrease from the same month the previous year.

Despite rising mortgage rates, demand for homes continues to exceed supply, increasing the cost of owning. Actually, “we don’t have any inventory, so it’s gotten worse.” Jennifer Leahy is a real estate agent from Connecticut.

According to real estate professionals, demand for properties has been gradually increasing even though supply has been essentially flat in many Northeastern urban regions. According to Leahy, buyers who had been holding out for housing prices to drop over the previous two years have finally given in, and this greater demand is pushing up property prices.

“Before COVID, we were in a seller’s market with low inventory, and COVID only made it worse,” Boston-based real estate agent Alex Fronduto told MarketWatch. He pointed out that there are no single-family homes for sale in some of the towns in eastern Massachusetts where he works, and that properties there are nevertheless selling for more than their asking prices.

Prior to the spring home-buying season, early data indicates that home-buying activity in the Northeast was already starting to pick up steam. According to data from the National Association of Realtors, the number of properties that went into contract in January increased by just 0.3% over the previous month, with the Northeast being the only region to have a gain during that time.

Therefore, buyers in the area who intend to buy a house in the next months should prepare for competition.

“There’s a lot of room to the upside,” Corcoran Centric Realty real estate agent Jeff Jackson of Connecticut told MarketWatch. However, in certain markets, people “don’t mess around,” he continued. “They just make bids and get the deal done.”

Despite the exorbitant cost of homes, buyers are emerging from the woods.

The 30-year fixed-rate mortgage is now double its average rate during the epidemic, and home prices in the United States are at all-time highs. According to the National Association of Realtors, the average single-family home in the United States currently costs close to $400,000.

If a buyer could afford a 20% down payment at today’s mortgage rates, they would need to earn roughly $106,000 in gross income to comfortably purchase a property with that price tag. According to the U.S. Census Bureau, the real median household income in the United States is approximately $80,610, which is far greater than that amount.

The Federal Reserve Bank of Atlanta’s accompanying figure illustrates how much the difference between the real median household income and the amount of money required to spend no more than 30% of one’s annual income on housing—a typical measure of affordability—has widened in recent years.

In January, the typical price of a home in the Northeast was $475,400, making it the second most expensive region in the United States, after the West, where the median price of a home is $614,200.

However, one of the most competitive areas for home purchases is still the Northeast.

According to a monthly analysis by Realtor.com, the Northeast has the most metro areas on the list of the 20 hottest real estate markets in the United States in February. This rating is based on the number of page views per property and the amount of days that listings are on the market. (Move Inc., a subsidiary of News Corp., operates Realtor.com; Dow Jones, the publisher of MarketWatch, is also a News Corp. subsidiary.)

According to Sean Adu-Gyamfi, a Coldwell Banker Warburg real estate agent in New York City, buyers have been “coming out of the woodwork,” as he told MarketWatch.

According to Adu-Gyamfi, “they’ve come to the conclusion that if they really do want to buy, now is going to be the best time” before the spring housing market heats up.

Ahead of the spring home-buying season, buyers are “coming out of the woodwork.” Sean Adu-Gyamfi, a real estate agent in New York City

An ‘as is’ home in New Jersey sold for $620,000 more than it was listed for.

The house itself was a typical one. With four bedrooms and a two-car garage, it was constructed in 1948 on a one-acre site. The single-family home was listed as part of an estate sale and was sold “as is”—the real estate code for “the property needs some work” The proprietor had passed away at the age of 100.

The real estate agent who listed the house, Saritte Harel, anticipated receiving several offers. After all, the house was located in the stylish, affluent small town of Short Hills, New Jersey, which is sufficiently close to New York City. The neighborhood elementary school could be reached on foot, and commuters could reach Midtown Manhattan in 35 minutes from the nearby train station.

She was surprised when, after seven days on the market, the house received 24 offers and sold for $620,000 more than it was listed for. The house, which would be demolished and rebuilt by a local family, sold for $1.72 million in the end.

Even yet, it was a wonderful deal: according to Redfin data, the town’s median sale price in January was $2.5 million.

According to Keller Williams Realty agent Harel, “It was the kind of house that appealed to everybody,” she told MarketWatch.

According to Harel, it is common for residences in that market to receive several offers, even though 24 offers on a property is unusual. Nine bids and 100 tours were received for another Short Hills house she marketed for approximately $1.9 million, which is already under contract.

Harel’s experience with high demand brings to light a basic issue with Northeastern markets, which are generally hot: they have little supply. Chen Zhao, Redfin’s head of economics research, told MarketWatch, “It’s very difficult to build new construction in these areas because you probably have a lot of single-family zoning.”

The East Coast saw a change in the home-buying frenzy from the West Coast.

Over the past five years, the buying frenzy has moved from the West Coast to the East Coast, according to Zhao’s examination of real estate transactions, which included comparing final sale prices with quoted prices.

In January 2020, San Francisco, Oakland, and Tacoma, Washington, were the three metro regions where the sales prices of homes most frequently exceeded their asking prices. These three metropolitan regions were Hartford, Connecticut; Newark, New Jersey; and Rochester, New York, in January 2024.

According to Redfin, the top ten metro areas with the highest average sale price over the list price are displayed in the following graphic, along with the average sale price as a percentage of the list price: