Impossible dream? Home buyers face record prices, bids thousands over list price

Ben Mace
Delaware News Journal

Record-high home prices are pushing the American dream out of reach for some Delawareans ready to buy their first house, but programs are available to help. 

“It’s definitely been tough,” said Zach Harris, 23, of Middletown. “A lot of houses I tour, I’ll say, ‘I like it,’ to my real estate agent and move on to the next step with my loan officer, but then people outbid me by $20,000 to $40,000 over the list price.” 

In about five months of searching, Harris said he hasn’t been able to find a home he likes in Middletown that he can afford. He thought he had a chance at a home in Clayton listed at $340,000, “but it ended up selling for $396,000.” 

Zach Harris looks at homes under construction May 26 in a Middletown neighborhood where he was hoping to buy a house, but he said the listing prices have been too high for the loan amount he qualifies for or he's been outbid by offers of $20,000 to $40,000 over the listing price.

Although he’d like to stay in his home state, after doing some research, he’s considering moving to Tennessee because of lower housing prices and no state income tax. 

According to the real estate website Zillow, the typical home value in Delaware is $298,025, an increase of 12.3% since April 2020 for the middle-price tier of homes. That’s higher than the national figure of $281,370, which is up 11.6% since April 2020. Typical home price appreciation is between 3% and 5% per year, the website said.

Across the country for existing homes, the National Association of Realtors said the median sales price in April was a record-high $341,600, up 19.1% from $286,800 in April 2020.

For new homes in the U.S., the median sales price in April was $372,400, up 20.1% from $310,100 in April 2020, according to the Census Bureau and the Department of Housing and Urban Development.

Prices in the Hidden Brook neighborhood between Smyrna and Cheswold start from the $400,000s, as pictured May 27.

However, sales were down in April compared with March, off 2.7% for existing homes and 5.9% for new homes.

“Contract signings are approaching pre-pandemic levels after the big surge due to the lack of sufficient supply of affordable homes,” said Lawrence Yun, chief economist for the National Association of Realtors. “The upper-end market is still moving sharply as inventory is more plentiful there.”

‘Prices are astronomical’

Jamie Coyle of Wilmington said she and her husband have been “frustrated” at the lack of choices for first-time buyers. They’ve been searching for over a year, trying to move from their apartment to a home of their own.

“There’s not a lot of houses on the market at our price point,” about $250,000, Coyle said. “When we started looking, our price point was lower, as far as what we qualified for, so we’ve been building our credit. We’ve been able to get approved for more, but house prices just keep going up faster. The prices are astronomical.”

She said sellers can pretty much name their terms.

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“We were approved for an FHA loan, but most people now want cash or a conventional loan,” Coyle said. “People are putting up all-cash offers or outbidding us. We’ve bid on some where they have 29 or 30 offers. It’s hard to compete.”

She and her husband have considered a fixer-upper, but those homes have their drawbacks for people relying on loans.

“What are you going to do if the price doesn’t meet the appraisal for the loan?” Coyle said. “Sellers aren’t willing to come down in price or make the fixes you need to meet the loan requirements.”

Coyle also said fixer-uppers are being snapped up by flippers – people who buy a home, make repairs and upgrades and then try to sell it quickly.

“I think it’s because of all those home-improvement TV shows,” Coyle said. “The houses that are affordable for first-time buyers, flippers are coming in, buying them, paying cash, and then flipping them and selling them for more than we can afford.”

Help is out there

For buyers like Harris and Coyle, programs are available to assist with financing for a home – if they’re able to win a bid.

Some buyers have the income to afford a monthly mortgage payment, but not a pile of cash for the down payment and closing costs. Other buyers could qualify for a larger house if they could get a slightly lower interest rate.

The Delaware State Housing Authority offers help for both problems, said Jessica Eisenbrey Welch, DSHA director of public relations.

“We work with participating lenders throughout the state,” Eisenbrey Welch said. “It can certainly help a lot of people especially during these times when things are so crazy. You really need to have a mortgage arranged before you purchase a home.”

DSHA offers 30-year, fixed-rate mortgage loans through a variety of lenders with interest rates at or below the market rate.

“With rising home costs, we had a record year in 2020, helping 2,289 Delaware families purchase a home,” Eisenbrey Welch said. In 2019, the number was 1,455 families.

DSHA arranged financing of $480 million in mortgages last year, up from $253 million in 2019.

“One of the misconceptions is that we’re only for people with low income,” Eisenbrey Welch said.

To qualify for DSHA programs, household income limits range from $98,200 in Kent County to $144,900 in New Castle County. The maximum loan amount is $417,000.

Eligibility also depends on your credit score. The minimum score to qualify is 620, and people with scores of 620 to 659 are required to participate in housing counseling, with information on budgeting and finances.

Eisenbrey Welch said another myth is that DSHA programs are for first-time buyers, but repeat buyers also can receive help as long as the home will be their permanent residence.

First-time homebuyers using a DSHA program are eligible for a tax credit of up to $2,000 per year.

Realtor Monica Hill with RE/MAX Associates, North Wilmington, said DSHA programs have “bridged the gap” for clients who needed down payment assistance or credit counseling to qualify for a home mortgage. Some clients also have received help in repairing their credit through the DSHA.

“If they don’t have a mom or dad who can gift money, or a favorite relative, but their credit is good, the Delaware State Housing Authority helps get them into homes they otherwise couldn’t qualify for,” Hill said.

Advice from a lender

Pike Creek Mortgage is the current leading lender of mortgages through the DSHA.

Pike Creek loan officer Kim Edwards said many buyers, especially first-timers, are finding they need help with the down payment and closing costs.

“Home prices are escalating so appraisals are not necessarily matching the sales price. The difference between the sales price and the appraisal has to be paid in cash because the loan is based on the appraised value,” Edwards said.

Many buyers don’t have that cash.

“The other thing that’s going away is seller’s assistance. Most sellers aren’t giving that anymore. They don’t need to because they’re receiving so many offers,” Edwards said. “Before, buyers didn’t really need much of their own money. Now they do.”

A basic estimate for what a buyer needs in cash is 10% of the selling price for the down payment and closing costs, but Edwards said with DSHA programs, a buyer can reduce that to about 5%. No down payment is required for Department of Agriculture loans for homes in rural areas or for Veterans Affairs loans for veterans or military personnel.

“First-time homebuyers with money in the bank are doing OK,” Edwards said. “Those who don’t have to wait until they can get seller’s assistance or go with a USDA loan or VA if they’re eligible.”

She's seen clients who were approved for a loan come back to ask for more because the bids on the home they wanted were above the listing price.

“The biggest frustration I’ve seen is there’s not a lot of inventory out there in the price range for their salaries," Edwards said. "There are very few homes on the market in the $150,000 to $200,000 range.”

She said a fixer-upper is a possibility, but only if it meets the appraisal requirements. It can be difficult to get a loan on a home in poor condition.

Edwards gave the following advice for first-time buyers before starting a home search:

Money in the bank: Have money saved for the down payment and closing costs. Funds for closing can come from parents or relatives in the form of gifts.

Job stability: In general, working at one job for an extended period looks better on a loan application than switching multiple times.

Establish and maintain credit: “Even if you don’t use it much, get a credit card and make payments on time, to establish credit,” Edwards said. “Not having credit is not a good thing.” A car loan, if you pay on time, can establish good credit, as will paying bills on time.

Pay off student debt: “Student loans, even if deferred, still have to be counted as part of your debt ratio,” Edwards said. “Even with a good job with a good salary, if you have large student loan debt, that will affect whether you qualify for a loan.”

Check on DSHA programs: The Delaware State Housing Authority provides assistance with credit counseling, loans including some at below-market rates and down payments.

Get pre-approved for the loan: “The four types of loans, VA, FHA, USDA and conventional, all have different down payment requirements, debt ratio requirements, minimum credit scores, and how student loans are calculated as part of the debt ratio,” Edwards said. Applying for pre-approval helps clients know what loan is the best fit, the loan amount they qualify for or what they will need to improve before qualifying for a loan or for a larger loan.

Edwards also recommends choosing a local lender who will usually have more knowledge of the lending programs and assistance available in Delaware than national lenders.

Reach reporter Ben Mace at rmace@gannett.com.