A midsize city in upstate New York is the country's toughest housing market this spring
To hear local Realtors tell it, losing a few bidding wars is a rite of passage for any prospective homebuyer in Rochester, N.Y.
In the western New York city, homes typically go from listed to under contract in a matter of days. A well-kept home can command dozens of offers. Listing prices might as well be starting bids. Agents often advise clients surfing online listings to set their price filters well below what they actually hope to pay, to account for the inevitable bidding wars.
By many metrics, Rochester, a city of 200,000 on the banks of Lake Ontario, has the most competitive housing market in the country.
Zillow's market heat index, which measures factors like time on market, interest in active listings, and price cuts, ranks Rochester as a tougher place to buy a home than San Francisco, San Jose, Boston, and New York. The index considers any reading over 70 to be a strong seller's market. Rochester scores a 146.5.
'After one or two offers, they kind of get the hang of it, and then they listen to my advice,' said Talha Shahid, a real estate agent in the city. He tries to prepare his buyers for the reality that a home listed at $300,000 will likely sell for $350,000, and that any offers with inspection contingencies usually aren't competitive.
Learn more: Is now a good time to buy a house?
So, how did a city whose population peaked in 1950 end up with one of the most cutthroat real estate markets in the US? The answer, somewhat counterintuitively, has to do with its affordability.
The median home in the metro area of about 1 million sold for $225,000 at the end of March, according to the Greater Rochester Association of Realtors. That's up 12.5% from a year earlier, but still cheap enough to be achievable for buyers earning $60,000 to $80,000.
The area's median household income was around $67,000 in 2022, and major employers span several relatively well-paying industries like healthcare and higher education. Paychex, a publicly traded payroll provider, is headquartered in the city, while the corporate offices of East Coast grocery store chain Wegmans are in a nearby suburb.
Read more: How much house can I afford with a $70,000 salary?
'We're catching up with the rest of the country,' said Jonathan Long, a Rochester-based mortgage loan consultant with 1st Priority Mortgage. 'The housing market is a little tough, and mortgage payments are a little tough right now, but all in all, I would still say it's a super affordable place to live.'
'Nothing out there'
Meanwhile, the region has struggled for years with a deep inventory shortage. There were just 913 homes for sale at the end of March, down 8.1% from a year ago, according to the Realtors association. On average, a home spends just eight days on the market.
'There's nothing out there,' said Mark Siwiec, the CEO of Elysian Homes, a Rochester-based real estate brokerage. 'Post-Great Recession, we are shy 18,000 housing units.'
Siwiec blames the inventory problem on multiple factors: a lack of building throughout the region due to factors including higher costs and local politics, homeowners staying in place longer, and, of course, people with 3% mortgages who don't want to move now that rates are more like 6.8%.
Learn more: When will mortgage interest rates go down to 4%?
Right now, homebuilders have little incentive to come to the area because low home prices often translate to thinner margins. According to Richard Deitz, a Buffalo-based economic policy adviser at the New York Fed, while Rochester is reinventing itself as a healthcare and education hub after decades of manufacturing job losses and the shrinkage of Eastman Kodak and Xerox, the area's economy is relatively weak and its population is slowly falling.
'This isn't a matter of a booming economy and population growth bidding up home prices,' Deitz said. 'There's so little for sale that it's bidding up prices of what's there.'
With little new construction available, many buyers are considering older homes. Colonial styles are popular in the region, as are American Foursquares, a boxy two-story home type commonly constructed between the late 1800s and the 1940s.
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Buyers are often a mix of investors, locals, and relocators. Homeownership costs in the region are fairly low compared to average rents, making it a popular place to own rentals.
But Siwiec sees signs that the tides are turning, if only slightly. Since April, he says he's noticed the market slowing, which he thinks may be related to heightened economic uncertainty. He's cutting costs at his brokerage to prepare.
'Today, of the 18 properties we list for sale, I should have 18 sales under my belt,' he said. 'I will have 10 or 11. That's shocking.'
Ahmed Munasser, 33, has plenty of experience navigating the Rochester market. He works in the mortgage industry and has previously purchased investment properties in the region. When it came time to buy a home for himself, he searched for about four months and switched real estate agents after several of his early offers didn't pan out. He ended up buying in the nearby suburb of Greece, N.Y., with a strategy that included a larger-than-typical deposit and giving the home's previous owners a month to vacate after closing.
Despite the challenges, Munasser said this was one of his easier searches.
These days, 'a lot of houses don't go for a lot more than the asking price,' he said. 'Some of them do — I was looking at one house that went for $120,000 over the asking price. But others only go like 20, 30 or 40K over.'
His winning bid? $9,000 over list.
Claire Boston is a Senior Reporter for Yahoo Finance covering housing, mortgages, and home insurance.
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