Historically low interest rates, a rush of out-of-state homebuyers, limited inventory and higher construction prices for new homes have made for a frenzied housing market that has put homeownership further out of reach for some South Dakota residents.
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.
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…
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