Historically low interest rates, an onslaught of out-of-state home buyers, limited inventory and higher construction prices for new homes have created a frenzied real estate market that has pushed home ownership further out of reach for some South Dakota residents.
The highly competitive real estate market is producing a number of results often seen in coastal states but rarely seen in South Dakota.
First time buyers or those looking for affordable property have found themselves in bidding wars with others willing to pay $ 20,000 to $ 60,000 above list price. Asking prices are being driven by high demand from out-of-state residents of South Dakota moving to South Dakota to work, to feed, or to approve of the way the state works during the pandemic. Each is competing for a smaller pool of homes in the market, and some South Dakota homes sell in less than two days.
“I’ve been in the real estate industry for 33 years and I’ve never seen it this way,” said Rep. Roger Chase, R-Huron, a real estate agent. “Lots of people want to move here.”
The frenzied market is driving up property prices and making it difficult for low-to-middle-income residents to own homes. The average annual income of $ 45,000 in South Dakota can’t match the spending power of a six-figure salary outside of the state. Those long-term residents who could normally buy a home are forced to stay in rental properties, further limiting the rental units available for families in need of affordable housing.
“All of that demand doesn’t seem to be fueled by home purchases, so it’s moving to the rental market,” said Bryan Achbach, director of the Pennington County Housing and Redevelopment Commission.
Many of the main complexes the coalition uses in Rapid City are 100% busy with waiting lists, which is not normal, Achbach said. The commission’s clientele has struggled to find rental units and existing tenants are seeing a rapid rise in rents, Achbach said.
“Families are put in a really difficult position for circumstances that are really out of their control,” he said.
The strong sellers market is emotionally stressful for potential buyers, especially those first time trying to own home and maintain the financial stability and investment capital that come with owning a home.
Eilish O’Toole of Sioux Falls thought 2021 was the right year to buy a home.
Their rent got high enough to match a mortgage payment, and O’Toole, who works for Lutheran Social Services and helps former inmates transition into society, wanted a yard for their son to play on.
O’Toole, 25, was pre-approved for a low-interest FHA loan in January and was initially looking for a house on the west side of Sioux Falls. She expanded her search to downtown and eventually eastern Sioux Falls when homes in their price range of around $ 200,000 were quickly taken off the market.
The first house she looked at was signed by another buyer when O’Toole pulled into the driveway for a tour. O’Toole placed bids well above the price of four houses, but was outbid each time.
O’Toole finally gave up and signed a lease on a new apartment. She didn’t want to stay in her current apartment, where rent rose 18% and utility bills were billed separately.
“I think everyone has to move to Sioux Falls,” she said. “Apartments were (rent) before I could pick up an application.”
Housing availability and affordability is an issue in every South Dakota county, said Rep. Chase, who will lead a summer legislative study to find out how the state can help communities strengthen their local housing market. The first meeting of the group is planned for June 9th in Pierre. More meetings are likely to take place on the west and east sides of the state, Chase said.
“The lack of housing is preventing South Dakota from growing faster,” Chase said.
The South Dakota real estate sellers market is part of a national trend.
The US housing stock hit a record low of 1.03 million units in late February, according to the National Association of Realtors. The number of houses in the market in March was 52% lower than in March 2020 realtor.com.
The tight real estate market is forcing some South Dakotans to make difficult or somewhat drastic decisions in order to be able to afford a home.
Macy Trautner, 24, and her boyfriend Adam Christensen wanted to move out of the Sioux Falls subway, but homes in the surrounding towns were selling too quickly and too far outside their price range. A house the couple toured in Harrisburg had sold for $ 30,000 above the asking price the day after they entered the market.
Another house they were interested in received offers in the first hour of an open house. The first-time buyers eventually bought a home that was damaged in the 2019 floods and hope to take over occupancy once the repairs are complete in June.
605 Real Estate’s Beth Meyer warns her clients that they may need to act quickly and place multiple bids before they can get a deal. On the first weekend in May, she let 40 people look at a house for $ 260,000. Around this time last year, she thought an open house would be successful if it attracted six potential buyers.
“It was an ability to get our buyers through this emotional roller coaster,” said Meyer.
Real estate agents are far busier than normal and benefit financially from the hectic market.
Watertown agent Lynn Morris estimates that her customer base outside of the state has grown 80% over the past year.
“We had so many people from abroad,” said Morris. “We have passed a pandemic hiatus and now our phones are ringing on non-governmental buyers. We have a shortage of stock. For the first time, things are selling above list price. “
Some sellers use the extra money they get for their homes to build a new home, a prospect that is costly due to the high prices of building materials.
Those trying to build are seeing an 18% to 80% increase in material costs, especially for sawn timber, due to production shutdowns during the pandemic.
The cost of materials to build houses under the governor’s house program has increased about 19%, said Lori Moen, chief operating officer of Grow South Dakota. Governors’ houses are affordable homes built at Mike Durfee State Prison in Springfield for low to middle income families.
The average cost of a home has also increased over the past decade. According to Zillow, a single-family home in South Dakota cost an average of $ 161,000 in 2012. This year the average is $ 253,000.
The rise in material costs, demand for housing, and the rise in property prices have all reduced affordable housing options, especially in rural communities, Moen said.
“In our rural communities, the housing stock is initially short,” she said. “Families living in these communities find it difficult to find accommodation they can afford and that is right for them.”
Local real estate agents expect the market to stay hot for at least the rest of the year. They advise prospective buyers to get pre-approved for credit and prepare for an emotional bidding war or the prospect they may need to keep renting.
The pandemic caused more Native American families to consider home ownership, despite challenges for buyers.
Reservation communities often do not have local real estate agents or home sales websites. Building new reservations is very expensive, said Brunsch.
Despite the hurdles, said Brunsch, the interest in home ownership is still rising. Brunsch, who is also chairman of the Lakota Federal Credit Union in Pine Ridge, said a pipeline of potential borrowers for the credit union’s home loan and mortgage programs is growing.
“I expect there will be a huge surge in borrowers keen to finally take the plunge into homeowners,” she said.
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