How Hot Is The Real Estate Market? Example Of A 30% Overbid

how hot is the real estate market

Remember the $1.69 million three bedroom, two bathroom condo I used as an example in “How To Correctly Value And Analyze Property“? I forecast it would go for $1.85 million. 2553 Greenwich has a fantastic view of the Bay, but it doesn't have a dedicated entrance, and it's on three floors after walking up a flight of stairs.

I figured the property could easily reach $1,000/sqft in several years, or $2 million due to the view and upward trajectory of the SF real estate market. It turns out my estimate of $1.85 million was just wishful thinking of what I'd like to pay. A friend's friend bid $2 million for the place cash and LOST! Just think about that for a minute. Someone was willing to pony up $300,000 above asking and still got a big fat rejection!

The only people who have $2 million cash liquid are those with net worths of at least $5 million if not much, much more. Of course someone with “only” a $2-3 million net worth fully invested in the stock market could just liquidate instead, but that's highly unlikely. The multi-millionaires I know coincidentally follow two main Financial Samurai rules: 1) They don't spend more than 1/10th of their gross income on cars, and 2) No one asset class makes up more than 50% of their net worth. They are highly diversified.

The Hot Real Estate Market

It turns out that 2533 Greenwich Street received 8 offers with the winner paying $2.2 million cash! That's $501,000 over asking, or roughly 28%! How does one even come up with a $2.2 million valuation anyway? It's like shooting into the dark as you don't know what other people are doing. This is a classic case where underpricing brings maximum value.

Large Open Living Room With Views Of The Bay
Large Open Living Room With Views Of The Bay

$2.2 million is mind blowing due to the hodgepodge nature of the property. It could be completely done up, but without a dedicated entrance and no connection from the garage into the condo for security purposes, it just feels a little off. And with all those stairs starting from the street level, it really should have an elevator. Regardless of my opinion, more than five people thought the property was worth more than $2 million bucks so that's all that matters.

Spacious patio with Golden Gate Bridge Views
Spacious patio with Golden Gate Bridge Views

Hot Real Estate Market Takeaways

* Cash buyers are everywhere. The amount of all cash offers in the market is increasing. Some peg the amount at 30%. Cash will always trump another buyer who has to take out a loan.

* International buyers are here. One of the reasons why you want to invest in a major city is because of the international demand curve that city faces. The buyers of the next decade are from Mainland China just like how the Japanese were the buyers of US assets in the 80's and 90's. They are buying properties in cash for themselves and for their children. Part of the reason is because they want to diversify their riches away from China. Another reason is the steady appreciation of the Ren Min Bi which is making foreign assets more attractive.

* Focus on prime property. Lower tier property may have risen more in percentage terms, but they also fell way more as well. Think of prime property at the top of a triangle that keeps on growing in height and width. The growth is in demand of limited prime property, resulting in continued price growth. What seems ridiculously expensive now will seems even more ridiculously expensive 20 years from now.

* It feels crazier now than during the peak. I distinctly remember getting outbid on several properties between 2004-2007. It now seems worse because there's 40% less inventory at any given day plus 5 years of pent up demand. Some properties have breached peak prices, but still many have not, especially in outer areas and vacation spots. There is still lots of opportunity if the entire tide is going to lift all properties to new highs. You've just got to spend the time to look if you can't afford prime areas or if you're looking for that second home.

Time For A Property Cool Down

San Francisco Home Prices After Facebook IPO
The real estate market is on FIRE! But it is finally slowing down in coastal cities.

It's a little absurd why there are so many buyers now compared to just a couple years ago or even just in 2012 when prices and rates were lower. I don't think we are in a property market bubble for the nation as we are coming off a low base. Pent up demand is real and only growing with such limited supply.

We'll see what the future holds. I've been tracking plenty of great real estate sales in San Francisco for over-asking during the pandemic. It is incredible to witness.

Real Estate Market Is Hot Again Post-Pandemic

I swear, real estate is my favorite asset class to build wealth. Over time, you build equity and experience capital price appreciation. In 2021+, the real estate market is very strong as the economy rebounds. More people want to own homes, but supply is way down.

With an accommodative Fed and Federal Government, the housing market has room to run for years. You may need to pay cash or make a no-financing contingency offer to stay competitive.

Personally, I'm buying more rental properties and investing in real estate crowdfunding in the heartland of America. I see high single-digit price percentage increases a year for the next three years.

Wealth Building Recommendations

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Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you're looking for strictly investing income returns. Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer. It's free to look.

Fundrise Due Diligence Funnel
Less than 5% of the real estate deals shown gets through the Fundrise funnel

Refinance Your Mortgage Today

Check the latest mortgage rates online through Credible. Credible has one of the largest networks of lenders that compete for your business. You can get free, no-obligation quotes in minutes. The more lenders compete for your business, the lower your rate. Mortgage rates continue to be near all-time lows. Take advantage. 

The 15-year mortgage rate looks very attractive as it usually is not lower than the average 5/1 ARM. This mortgage anomaly will probably not last as the economy continues to recover.

Latest mortgage rates

49 thoughts on “How Hot Is The Real Estate Market? Example Of A 30% Overbid”

  1. We’re targeting a particular neighborhood that is literally across the freeway but bidding has been incredibly intense over there.

    In the meantime, much nicer/newer homes in my neighborhood sell for 10-20% less on a per/sq-ft basis.

    Location Location Location

    Also, would you please admit that not locking in 3.5% for 30 years was a bad idea!?

  2. Your Daily Finance

    I remember that post called it. I little off on the number but hey anyone that would have listen would have scored big. Maybe you should take a look at my neck of the woods here in Florida. I’m looking to get into real estate but I’m getting murdered with deals from international buyers. Where are they getting all this cash from? People are buying 795k homes cash and then turn around and demo them to build new ones.

    1. I’m actually WAY OFF on my number! There is a winner’s curse though for at the moment, nobody is willing to pay that much.

      There’s way more money out there than we know!

  3. Lots of international buyers in Vancouver as well parking their Asian money here. I don’t live anywhere near the pricy Vancouver area but a friend who rents says it’s common for them to park their money here and it’s a way to keep money safe in an another currency. They are not playing the real estate market and they don’t even live there.

    Schools are having trouble because families are moving out and residents don’t have kids for those schools.

    1. I’ve heard about Vancouver attracting HK money for a while. Will be scary if Mainland Chinese decide to buy up everythig as well which is probably happening.

      The term you describe is “parachute kids” for the children of the wealthy.

  4. Arizona is a boom and bust town. Right now we’re booming, and the key is to time the boom and sell at the top. Generally speaking, it is not a good strategy to be a buy-and-hold investor here, unless maybe you bought in ’10 (or during ROTC or just got a killer deal at some point) and are holding because you great yields.

    1. I hear you on Arizona and Vegas and other cities. Although, I’ve got to believe the general long term direction is up. Just more volatility on seemingly endless land.

  5. The market in the Los Angeles area is rising quickly. In the last 6-months, prices have risen a lot and demand is outpacing supply. It feels like the mid-2000’s! I’m kicking myself for not having bought anything last year. It seems like last year would have been the “sweet spot” for making a buy. I hope this is only speculation and things settle down over the next 12 months.

    1. Yeah, Spring 2012 would have been nice indeed. I’m glad I didn’t sell last year. But if I could rewind time, I don’t think I would have bought lady year either because I’ve hit my set limit and don’t want to deal with being more of a landlord.

      The recent rate hike should provide a breather. Keep on looking if you are serious!

  6. I bought last year and refi’d this past spring at about .9% lower and a shorter term….

    Thank goodness I don’t have to worry about buying for a while. People are nutty about RE.

  7. I reside in an area of Texas experiencing an ‘oil boom’ and subsequent rise in property values. Any nice homes available in San Francisco for around $200k? I would like the cooler weather for a change. Thanks.

    1. Financial Samurai

      Sorry, nothing available is SF for under $350k. Seriously. Kinda sad. You might get a good location 600 sqft studio for $500k.

  8. I still wonder if there is not yet another bubble about to pop. I remember hearing about all these houses that were eligible for foreclosure, but banks were just waiting because they did not want to flood the market. I’m sure SF and other similar markets may be exceptions, but is there any way of knowing how many of these waiting to be foreclosed upon properties there are?

  9. Why am I so skeptical? Everyday I see articles and news stories about how hot the real estate market is right now and, to me, it all just seems so…fishy. I understand and acknowledge many of the purported drivers, but they just don’t add up to the insane appreciation and bidding wars. Ok, so inventory is low because 1) many homeowners are still under water from buying at the height of the bubble, 2) cash investors, both individual and institutional, are snatching up properties and 3) home builders have been idle for a long while and are just now starting to ramp up. Demand is high because 1) rates are still historically low and panicked buyers are afraid rates are going up, 2) some people have been waiting (pent up demand).

    However, all those those don’t add up to the insane behavior going on right now. Unemployment is still quite high. Wages/income are not going up. People are still getting laid off. Maybe I’m way off track, but I just don’t get a good feeling about it all. It’s almost as if the market is over-correcting for the over-correction. Am I crazy??

  10. Sam – Even as a real estate bull, you must be looking at your properties in SF and considering selling, no? I have tenants in my place and with prices going so high, yields are down quite a bit. So tempting to take the money and run here.

  11. Housing in Southern California is hot too! There is a perfect storm in real estate right now, low inventory and high demand. When you factor in the rising interest rates, it gets a little crazy. There have been multiple bids on homes in the $500K range in southern California for about a year. Great time to sell, but where do you move to? Out of state or country is not a choice for me.

    1. Financial Samurai

      Where do you move is indeed the main reason why I don’t want to sell. $500 k sounds like good value!

  12. My wife and I recently accepted an offer on our house and had an offer on another home accepted in Hawaii in 6 days!

    The offer we accepted came in the day after we put it on the MLS… that was QUICK!

  13. The First Million is the Hardest

    I live in Buffalo, which is far from a “hot” market… but even here real estate is on fire. 3 houses in my neighborhood sold just days after the sign hit their yard. High end real estate is no different…the most expensive condos and lofts in the city are turning over pretty quickly in recent months as well. Nothing is sitting on the market too long at any price point.

    1. Financial Samurai

      Wow, if Detroit + Buffalo is moving then that’s amazing. The fever is spreading…

  14. I think the hint at rising interest rates is causing people to buy. I’ve noticed houses in my area that have been on the market for a while suddenly get bought of late. I wouldn’t have expected it given I live in virginia beach and its by far biggest employer is giving everybody(defense) a 20% pay cut right now after a round of layoffs earlier in the year.

  15. Wow, that’s nuts. $2.2 million cash is a ton of money. I wouldn’t spend that kind of money unless I have $10 million net worth. The comments are interesting as well. I guess Portland is under the radar for Chinese buyers. That’s too bad.

  16. I’m in metro Detroit, and the market is crazy hot as well. My friend had 18 offers in three days on his home and sold over asking. I had a realtor knock on my door and tell me he had a couple with cash interested in my house and wanted to know how much I would sell it for. It is funny how the “herd” moves…such irrational exuberance in both directions. Like my mentor told me, you only make $ at two times in real estate, the day you buy & the day you sell. I agree even this guy who paid 2.2 will look smart in 20+ years, but really where is all this money coming from? Not everybody is making $1M year right?

  17. The housing market in my area has definitely picked up. There were 5 houses for sale in my neighborhood a few weeks ago and they all sold, even a few that I thought were way overpriced!

  18. I am closing on a house in the 3 state area (around NYC) and bidding is war.
    We saw a property on sale one sunday at 599k, we were thinking about it, monday morning they got 6 offers and sold for 615k.
    There is no inventory and plenty of buyers.
    Thats all i can say where i live.

  19. We live in a suburb north of Chicago- where Hillary Clinton grew up! We had Asian buyers walking up and down our streets asking how to buy a house in our neighbor- only 1 of the 4 could speak english. I would love them to buy a home in my neighborhood…hard workers and meticulous with their property. If they paid cash for mine…I would’ve packed up so fast and moved to San Fran!

  20. We live in Bend, OR, a resort town, fast growing, and will be seeing a new 4 year university come here in two years, bringing 10,000 students, plenty of jobs for a town of 80k pop.

    We bought our first home in 2009, then our second in 2011, keeping the first as a rental. Our town was one of the hardest hit by the housing bubble, but is really bouncing back.

    House 1 was purchased for $242k at 5% interest in 2009. It was a short sale built in 2006 and originally sold for $425k and took advantage of the first time homebuyer credit of $8,000. Same floor plan in the neighborhood is currently selling for $350k. We have excellent renters, who have been renting for 3 years but am confident the home will attract enough interest to keep it full in this current environment. House is a block away from a nice school, in a beautiful planned community with a pool, park, and biking trails. Planning on keeping this as rental income and contributing $25k/yr in principle, paying it off in ten years. Refinanced to 4% 30 yr fixed and now grosses $1850/mo. and nets $350/mo.

    Our primary home was purchased in 2011 for $442k, our realtor believes we could list it for $699k and move it quickly. It is a charming large farm home on 5 acres and there is a shortage of custom built homes on property in our market. We are emotionally attached to the home and could see raising kids on it so we have held off on selling as we struggle with the next steps should we sell, as we don’t want to trade a good transaction for a bad one or reduce our quality of life. I would walk from the property if I had the ducks in a row on what I may do with the $280k in equity.

    My wife and I are in our 28 and 26 yrs old with no kids and feel very fortunate with our two transactions at the low of the market, we were very certain as there was clear value in each purchase. We feel now is the hard part, cashing in or just sitting tight for awhile until we have a clear picture of what we want to do next. We are slowly getting diversified in our asset mix $95k cash, $80k 401k, and our real estate holdings. No debt but the two mortgages (wrote a $30k check last month to pay off all the student loans!).

    Any thoughts would be much appreciated! I love the site and believe I am in good company with aggressive personal financiers

    1. Financial Samurai

      $80k cash is a lot. How much do you have invested in the stock market?

      I’d try to keep the cash levels under $10k or less given it’s all about other asset classes except cash.

    2. Sounds like you should definitely keep your larger home. You’re currently enjoying it and it will most likely only appreciate in value over time.

      In short, unless there’s reason to believe the area you’re in will for some reason drop in value, keep it until you absolutely need the cash.

  21. My wife had a much better view of the city from her hospital room in Cal Pacific at Castro & Duboce, but that was about $100,000 for 10 days, so by comparison the condo is a steal !

  22. You have to analyze the rest of the USA, your can’t analyze places that are having local boom times in one of the most expensive places in SF and extrapolate it to the rest of the country. Just a few miles away houses are much cheaper in daly city and the sunset.

    It’s like your saying there is a boom in Manhattan condos. Those rich people games are very disconnected from the rest of the US.

    1. I’m not extrapolating. I’m simply highlighting the results of an example in a previous post.

      Real estate is local, and this is what’s happening in SF and the Bay Area.

  23. To cool its market, the Hong Kong government instituted higher duties, or taxes, on properties valued at over HK$2 million ($257,610) and lower loan-to-value thresholds for mortgage lending. A special stamp duty hold, introduced in November 2010 was extended from two to three years in October 2012. There is a duty of 20% of the sale price if the seller owns the home six months or less, 15% for homes held between six and 12 months, and 10% for homes held between 12 and 36 months. To break even, home prices have to appreciate above these amounts within these periods.

  24. There have definitely been some big jumps back up from the bottoms our area hit a few years ago. To put it in perspective, our neighbors down the street bought around the same time that we did and paid about what we did (~$130K). Three years later, they sold for $260K and moved into an even more expensive house than that. There aren’t really bidding wars here, but there are definitely more housing starts in our area than has been seen since 2006. And very few of those are being built on spec like they were back then.

  25. We live in a suburb of LA considered desirable by the asian community – there are Mainland Chinese buyers coming in with offers of 20-30% over asking, cash, closing in a week. They are definitely diversifying and pulling money out of China, the market is dicey there and no matter what happens, US real estate has always been relatively safe. It’s a little insane – I don’t think we could afford to buy our house now!

    1. Financial Samurai

      It is insane. I was in Lucerne last week and all the luxury goods stores had Chinese writing as they came by the bus load. Sharing the wealth!

  26. Hi first time poster, long time reader here. My town here in New Mexico is interesting. It is mostly driven by tourism. Our average household income is below the national average, but 1,000-1,500 square ft houses go for 350-400k+ easily. This has to do to much of the nicer homes being bought for ‘summer homes’. It’s quite interesting that the same average household income homes in the Midwest are easily half the price! I can only see the price of homes here going up, not due to low interest (people who can afford summer homes are very well off and can outright buy a house) but because of the nice weather all year round.

    1. I live in mid IL. Half you say. I just bought 1000 sq foot house with 5 acres $32,000 needed about 10 grand in work. Hard to believe people pay that much for a place to sleep at night. wow.

  27. That building sure doesn’t look like much from the outside. I would never think there was a $2.2mil unit in there! Especially with that weird entrance that’s through the neighbor’s gate. That’s just weird. It’s crazy that the winning bid was $501k over asking. That’s insane. That’s as much as a couple houses in some parts of the country. One of my relatives is trying to sell his house right now so I sure hope some of this real estate frenzy goes his way!

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