The highly competitive housing market is leading to a range of outcomes often seen in coastal states but rarely in South Dakota.
First-time homebuyers or those looking for properties at an affordable price have found themselves in bidding wars with others willing to pay $20,000 to $60,000 above list price. Offer prices are being driven up by high demand from out-of-state residents moving to South Dakota for work, the lifestyle or because they approve of how the state operated during the pandemic. Everyone is competing for a smaller pool of homes on the market, and some South Dakota homes are selling in less than two days.
“I’ve been in real estate for 33 years and I’ve never seen it like this,” said state Rep. Roger Chase, R-Huron, who is a real-estate agent. “A lot of people want to move here.”
The frenzied market is pushing up home prices and making it more difficult for low- to medium-income residents to achieve homeownership. The $45,000 average yearly income in South Dakota cannot compete with the purchasing power of a six-figure, out-of-state salary. Those longtime residents who normally would be able to purchase a home are forced to remain in rental properties, further putting a limit to the available rental units for families in need of affordable housing.
“All of this demand doesn’t seem to be able to be fed with home purchases, so it’s going to the rental market,” said Bryan Achbach, director of the Pennington County Housing and Redevelopment Commission.
Many of the major complexes the coalition uses in Rapid City are at 100% capacity with waiting lists, which is not normal, Achbach said. The commission’s clientele has had trouble finding units to rent and existing renters are seeing rents rise rapidly, Achbach said.
“Families are being put in a really tough spot for circumstances that are really out of their control,” he said.
This 4-bedroom, 2-bath home on North Haines Avenue in Rapid City, located in a modest neighborhood north of downtown, was under contract for purchase in May for $204,900. The 1,784 square-foot property sold for $84,000 in 2008 and $104,000 in 2018, according to county records. (Bart Pfankuch / South Dakota News Watch)
The strong seller’s market is putting an emotional strain on potential buyers, especially those trying to achieve home ownership for the first time and obtain the financial stability and investment equity that come with owning a home .
Eilish O’Toole of Sioux Falls thought 2021 was the right year for her to buy a home.
Her rent was becoming high enough to equal a mortgage payment and O’Toole, who works for Lutheran Social Services and helps former inmates transition back to society, wanted a yard for her son to play in.
O’Toole, 25, got pre-approved for a low-interest FHA loan in January and initially started looking for a home on the west side of Sioux Falls. She expanded her search into downtown and eventually into eastern Sioux Falls as houses in her price range of around $200,000 were quickly snatched off the market.
The first house she looked at was put under contract by another buyer just as O’Toole pulled in the driveway for a tour. Her agent then texted her at 8 p.m. to alert her of a showing for another house. When O’Toole arrived, 30 other people were walking through the property, one of the few homes left in her price range. O’Toole put in bids well over asking price on four houses but was out-bid each time.
O’Toole eventually gave up the search and signed a lease in a new apartment. She didn’t want to stay in her current apartment, where rent was increasing by 18% and beginning to charge separately for utilities. The new apartment wasn’t easy to find either, she said.
“I think everybody must be moving to Sioux Falls,” she said. “Apartments were [renting] before I could pick up an application.”
Housing availability and affordability are concerns in every South Dakota county, said Rep. Chase, who will chair a legislative summer study to identify how the state can help communities strengthen their local housing market. The first meeting for the group is scheduled for June 9 in Pierre. Other meetings will likely be held on the western and eastern sides of the state, Chase said.
“Lack of housing is what’s keeping South Dakota from growing more quickly,” Chase said.
An urban and rural issue in S.D. and U.S.
The seller’s market among real estate in South Dakota is part of a nationwide trend.
Available housing inventory in the U.S. hit a record low 1.03 million units at the end of February, according to the National Association of Realtors. The number of homes on the market in March was 52% lower than in March 2020, according to realtor.com. The growth of online home sales has helped speed up the purchasing process. What used to be a national average of a 60-day sale is now down to 20 days.
Amid the frenzy in the Rushmore State, sellers who are fielding numerous offers are also having trouble finding a new house to move into; some are holding onto their property until they can build, compounding the decline of inventory.
“We’re hearing some sellers say, ‘That’s great, I could sell my place, put that equity to work for myself, but where would I go?’” said Darla Abels-Ling of Keller Williams Realty in Sioux Falls.
The tight housing market is forcing some South Dakotans to make difficult or somewhat drastic decisions in order to afford a home.
First-time buyers Miranda Dingus and her husband competed against 22 other offers on a home. Before they bid on one home, 66 other people had already toured the property.
Macy Trautner, 24, and her boyfriend, Adam Christensen, were looking to move out of metro Sioux Falls, but homes in the surrounding towns were selling too fast and too far out of their price range. One house the couple toured in Harrisburg had sold the day after it went on the market for $30,000 over the asking price.
Macy Trautman and her boyfriend, Adam Christensen, and their dog Baxter were able to purchase a house in Sioux Falls after being outbid on three different houses. (Photo courtesy of Macy Trautman)
Another home they were interested in started receiving bids in the first hour of an open house. The first-time homebuyers ended up purchasing a home that had been damaged in the 2019 floods and hope to take occupancy in June once repairs are completed.
Beth Meyer of 605 Real Estate warns her clients they may have to act fast and put in multiple bids before getting a contract. In the first weekend in May, she had 40 people look at a $260,000 home. This time last year, she considered an open house successful if it attracted six potential buyers.
“It’s been a skill to get our buyers through this emotional roller coaster,” Meyer said.
Real-estate agents are far busier than normal and benefiting financially from the hectic market.
Lynn Morris tells her Watertown-area realty team to answer their phones as often as possible.
Morris used to instinctively ignore most calls from out of state because she suspected they were spam. Now, she picks up every call because the person on the other end is probably looking to buy a home in South Dakota.
When the COVID-19 pandemic hit last spring, Morris was initially worried that business would slow or come to a halt. She jokingly describes that period as the “five-minute pause” before people from out of state started coming to South Dakota because they were attracted to how the government implemented few restrictions during the pandemic.
She estimates her out-of-state client base has increased by 80% over the last year.
“We’ve had so many people coming from out of state,” Morris said. “We went from a ‘pandemic pause’ to now our phones are ringing off the hook with out-of-state buyers. We have an inventory shortage. For the first time, things are selling over list price.”
Cathy Evans, Executive Director for Lemmon Housing and Redevelopment Commission, said the majority of those purchasing homes in Lemmon are from around the area.
Lemmon, population 1,200, straddles the border…