Michelle Gustafson for The Wall Street Journal
Dominic Pollock, still in his work boots, stood on the lawn of a 1960s-era three-bedroom house for sale in the former steel town of Bethlehem, Pa., 60 miles north of Philadelphia. It was listed at $250,000.
“I really, really like it,” Mr. Pollock told his real-estate agent Danny Hazim, a buddy from high school in neighboring Allentown, Pa. Groups of other interested buyers huddled nearby and whispered to their agents in urgent tones, casting sly glances at rivals.
Mr. Pollock, 25 years old, was willing to go above the asking price. He and his fiancée, Brooke Terplan, 26, had made more than 20 offers on houses over nine months. Each time, they were outbid.
The couple had hoped to land a home by their wedding this week and begin a life together. Mr. Pollock lived with his brother, and Ms. Terplan, a labor-and-delivery nurse, lived with her parents.
Like many would-be buyers, they braced for disappointment.
Home prices in the U.S. have shot up in the past year, driven by limited supply, record-low interest rates and buyer demand. Bidding wars have spread from such high-profile locations as Palm Beach, Fla., and the suburbs outside New York City to smaller cities and towns, including long-neglected locales where properties typically sat on the market for months.
Michelle Gustafson for The Wall Street Journal
Local buyers bid against one another as well as against investors who now comprise about a fifth of annual home sales nationally. Online platforms such as BiggerPockets and Fundrise make it easier for out-of-town investors to buy real estate in smaller cities across the U.S., said John Burns of California-based John Burns Real Estate Consulting.
Often, Mr. Burns said, “the cash flows are better in the Tulsas and Allentowns of the world” for those seeking to rent out properties. In the fourth quarter of 2020, nearly a fifth of homes sold in the Allentown area were bought by investors, according to Mr. Burns’s data.
The median listed price for a house jumped 24% in January from a year earlier in the metropolitan area surrounding Allentown, the Rust-Belt city whose decline was memorialized in a 1982 Billy Joel song, according to data from Realtor.com. It was the same in such spots as Martin, Tenn., a small city 150 miles from Nashville, where the median asking price went up 159% over the same period; in Kendallville, Ind., about 30 miles outside Fort Wayne, it climbed 56%.
The average price for a house in the Allentown metro area, which includes Bethlehem, was about $225,000 a year ago, Mr. Campbell said. It has since shot past $270,000 in a market so hot that open houses trigger traffic jams, and properties sell in 48 hours.
Many homeowners want to sell while prices are high but hesitate for fear they won’t find an affordable place to move. Housing supplies can’t meet demand.
In Bethlehem’s 18018 ZIP Code, the average monthly number of homes for sale has fallen 65% in the past year to 25 from 2017-2019 levels, according to Realtor.com. ( News Corp, owner of The Wall Street Journal, operates Realtor.com under license from the National Association of Realtors.)
Buyers feel pressure to make snap decisions, and some forgo routine home inspections for fear of losing to another bidder. “If you’re a buyer, this is the most frustrating time,” said Jonathan Campbell, vice president of DLP Realty in Bethlehem. The local market, he said, is outpacing the mid-2000s housing boom.
With the exception of a few urban markets, including Manhattan and San Francisco, the U.S. is seeing “a chronic shortage of inventory, heavy sales volume and prices rising at levels wildly ahead of income growth,” said Jonathan Miller of New York-based Miller Samuel Real Estate Appraisers and Consultants. The Case-Shiller U.S. National Home Price NSA Index reported a 12% annual gain in February, a figure seen only a few times in the history of the index, said Craig Lazzara, a managing director at S&P DJI.
The ranch-style house where Mr. Pollock stood with Mr. Hazim on Kensington Road had been listed a day and already had several offers. It was 1,900 square-feet with a full bathroom and two half baths. The sellers would only take bids until 11 p.m. the following day.
Mr. Pollock, who installs fire sprinklers, agreed to submit an offer of $270,500, adding $20,500 to the asking price. To sweeten the deal further, he waived his right to an inspection of the plumbing, roof, foundation or any other part of the house.
“We will know by tomorrow,” his agent, Mr. Hazim, told him.
First home
Old blast furnaces at the long-defunct Bethlehem Steel plant rise over the Lehigh River, 90 miles west of New York City. The city of Bethlehem and neighboring Allentown were major industrial centers until a wave of factories moved overseas in the 1980s and 1990s.
In the center of Allentown, population 121,000, Victorian row houses once occupied by middle-class families were divided into low-cost apartment rentals. The city’s downtown has recently been redeveloped, but crime remains a common complaint, said Mr. Hazim, 25, who grew up there.
Healthcare and universities are now major employers in the region, which is known as the Lehigh Valley. Much of the area is still farmed. The road a few minutes drive outside of downtown Allentown is flanked by cornfields, and the air smells of manure.
Michelle Gustafson for The Wall Street Journal
Mr. Pollock and Ms. Terplan grew up a few houses apart in an Allentown subdivision called Midway Manor. They started dating when they were 21. It was on New Year’s Eve 2016, at the pub where Mr. Pollock still tends bar on weekends. Someone asked if he was going to kiss Ms. Terplan at midnight, and he did.
The couple started looking for a house around the time they got engaged in August. They needed a place with room to start a family. Ms. Terplan said she wants to get pregnant as soon as they marry. “She really wants the American dream, the white picket fence, the two dogs out back,” Mr. Pollock said.
They had been saving for years and planned on making a 10% down payment when they started looking. “A couple people told us that it was going to be tough,” Mr. Pollock said, “but we couldn’t even fathom what we’d walk into.”
Before the pandemic, home prices in the Lehigh Valley began at around $15,000 for a mobile home and went to $400,000 for a two-story house in a newer subdivision. Historic homes in the West End of Allentown sold for as much as $450,000. For years, buyers had their pick, Mr. Hazim said.
After the first round of pandemic lockdowns eased, real-estate offices reopened last June, Mr. Hazim said, and agents noticed a shift in the market right away.
First, there were fewer home listings than normal because of Covid-19 fears. “No one wants to list their house because no one wants random people coming in,” he said of the scariest period. “You never know who has it.”
Supply also was down because the government’s mortgage forbearance program sharply reduced home foreclosure sales. At the same time, Mr. Hazim said, demand for homes ballooned.
Michelle Gustafson for The Wall Street Journal
Investors are attracted to the Lehigh Valley, Mr. Hazim said, because home prices and taxes are low relative to market-level rents. He recently worked with a New York City-based investor who bought a single-family house in the town of Northampton, about 20 minutes from Allentown.
The New Yorker paid $15,000 over the asking price—all cash, with no inspections—and planned to rent it out. The buyer, Mr. Hazim said, still marveling, took it sight unseen.
‘Shoot me now’
Mr. Pollock and Ms. Terplan first started looking in Bethlehem, close to their parents, and in nearby Easton, where Mr. Pollock lived with his brother. When one offer after another was rejected, they started looking farther afield and lifted their budget ceiling to $300,000 from $250,000.
Nearly once an hour on Ms. Terplan’s days off, she checked Zillow or Realtor.com for property listings, wondering, she said, “Are there any new ones?”
Their families were baffled at first. Ms. Terplan’s father “was getting so aggravated with us, like, ‘Hey, you’re doing something wrong!’ ” Mr. Pollock recalled. His future father-in-law couldn’t comprehend the market frenzy until they showed him the paperwork for one of the offers they had made above the asking price, Mr. Pollock said.
Mr. Hazim trudged alongside them. He showed the couple about 50 houses and shared their disappointment after rejected offers. He attended Dieruff High School in Allentown with Mr. Pollock and years later joined DLP Realty.
Michelle Gustafson for The Wall Street Journal
Mr. Hazim, 25, said he was working 12-hour days, seven days a week, and closing maybe five deals a month, about half of what he would expect while serving such a large pool of clients. “With so many hours required to close,” he said, “it’s going to turn out to be minimum wage.”
On a recent Wednesday, he took a two-hour drive to show his client Lisa Hanna a couple of listings she had found online. Both houses needed major repairs, and Ms. Hanna spent only minutes inside each of them.
“Shoot me now,” Ms. Hanna said, after exiting one in rural Ruscombmanor Township, Pa. “The pictures of this house are nothing like what the house is.”
Ms. Hanna, 48, who works for an insurance company in Bethlehem, was looking for a three-bedroom house with enough land to start breeding Great Danes. In two weeks of house-hunting, she saw 10 to 15 properties and made three failed offers. “I’m getting very discouraged,” she said.
She bought her current home six years ago, paying $116,000 for a new three-bedroom. It took her just a day to find it. Now, she worried she couldn’t find any house to move into. “It’s nerve-racking,” she said.
Many sellers have the same concern. “These people can’t list because they have nowhere to go,” Mr. Hazim said. He listed Ms. Hanna’s house for $189,000, and it sold within days in an all-cash purchase just under the asking price.
Michelle Gustafson for The Wall Street Journal
She still hadn’t found another house, but the buyers agreed to give her 45 days to keep looking. After a month with no luck, “I was freaking out,” Ms. Hanna said.
Afraid she would lose her buyers, Ms. Hanna put in an offer on a two-bedroom house—smaller than she had hoped—in the Poconos, and it was accepted. The two transactions are slated to close on the same day in June.
For Mr. Pollock and Ms. Terplan, the rejections have made for an emotional roller coaster. “It’s tough,” said Mr. Pollock, especially for his fiancée, who falls in love with each house they bid for.
“There were days that I came home crying,” Ms. Terplan said.
When they were first engaged, Ms. Terplan said, she didn’t imagine they would still be looking for a house by the wedding. A few weeks ago, she said, “I had the realization that we’re probably not going to have a house before we’re married. I had a little bit of a breakdown.”
Rents in the area have gotten as high as mortgage payments, but it may come to that, the couple said.
After hours of waiting for a response to their bid on the Kensington Road house, Mr. Hazim got an email from the listing agent.
“Thank you for your offer,” it said. “We had 14 offers, and my sellers chose one that worked the best for them. Best of luck to your buyers.”
Michelle Gustafson for The Wall Street Journal
The post Real-Estate Frenzy Overwhelms Small-Town America: ‘I Came Home Crying’ appeared first on Real Estate News & Insights | realtor.com®.
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