Redfin, a technology-powered real estate brokerage, released a collection of statistics today that illustrate some of the positive effects of the current cooling housing market. After nearly two years of a highly competitive market, once rejected buyers finally have another chance to purchase that home they always wanted, even with higher mortgage rates making it slightly more expensive to buy. The slower market also means house hunters can start to include contingencies again, like appraisals and inspections in their offers.
Other indicators that showcase the bright side to this cooling market include:
- Homes are less expensive than they were in the spring. Home sale prices and asking prices are both down 6% from the record high they reached in June.
- Homes are finally selling for under their asking price. The typical home sold below its asking price in August for the first time since March 2021, meaning buyers are having some success negotiating prices down, something that was essentially unheard of at the height of the pandemic homebuying frenzy.
- Home buyers have more choices. The total number of homes for sale was up 4.2% year over year in August. For-sale supply has been increasing year over year since June after a severe shortage in the number of homes for sale that started even before the pandemic.
- Competition for homes is easing. Nationwide, 44% of home offers written by Redfin agents faced bidding wars in July, the lowest share on record with the exception of April 2020.
In July 2022, 53 Austin, Texas homes sold for at least $100,000 above their asking price, equal to about 2% of all homes sold during the month. That’s down from 163 (4.7% of all homes sold) a month earlier and 362 (9.1%) a year earlier near the height of the pandemic homebuying frenzy.
That’s a prime example of the slowing housing market giving buyers a break after nearly two years of an ultra-competitive environment. The average 30-year fixed mortgage rate has nearly doubled from a year ago, reaching 5.66% during the week ending September 1. Though higher mortgage rates are making it even more expensive to buy a home after two years of skyrocketing prices, the silver lining is that they have thrown some water on the red-hot market.
“Ultimately, the news that home prices are finally starting to come down while bidding wars are becoming less common is more good than not,” said Jacob Channel, senior economist for LendingTree, an online lending marketplace. “While some current homeowners may be disappointed to learn that they cannot immediately sell their home for above their initial asking price as easily as they could over the last two years, the reality is that the housing market has grown much too expensive for a large number of home buyers. This is especially true given how much mortgage rates have risen this year.”
“With that said, while this latest news will likely be met with open arms from home buyers, prices still remain steep, as do rates,” said Channel. “It’s also worth noting that though prices are cooling, there still isn’t much reason to expect the housing market as a whole to crash or otherwise majorly slump. As a result, while home buyers may have a somewhat easier time purchasing a home over the coming months, those who are expecting prices to plummet should probably readjust their expectations.”
Redfin also compiled some of its most recent housing-market stats illustrating the bright side of the cooling market for buyers.
- Home prices are down year over year in some expensive metros. San Francisco (-3.7%), Oakland, CA (-3%) and Honolulu (-3.6%) all saw year-over-year declines in their median home-sale prices in August.
- Homes are finally selling for under their asking price. The typical home sold below its asking price in August for the first time since March 2021. For the last year and a half, the typical home has sold for over its asking price. That means buyers are having some success negotiating prices down, something that was essentially unheard of at the height of the pandemic homebuying frenzy.
- Home buyers have more to choose from. The total number of homes for sale was up 4.2% year over year in August. For-sale supply has been increasing year over year since June after a severe shortage in the number of homes for sale that started even before the pandemic. While supply declined slightly from the month before in August, it’s expected to level off.
- Competition for homes is easing. Nationwide, 44% of home offers written by Redfin agents faced bidding wars in July, the lowest share on record with the exception of April 2020, when the pandemic brought the housing market to a standstill. Thirty-seven percent of homes sold above their asking price in August, the lowest share since early 2021 and down from 50% a year earlier.
- Buyers have more time to see the homes on the market. The typical home was on the market for 26 days before going under contract in August, up from the record low of 17 days set in June. Thirty-five percent of homes went off the market in two weeks, compared with 43% a year earlier.
- There are fewer buyers in the market. Home sales dropped 19% year over year in July to their lowest level since the start of the pandemic. That reflects nerves around high mortgage rates and a volatile economy–but it also means the buyers who can afford to purchase a home naturally have less competition for the one they want.
- Patient buyers may get a deal. The share of homes that were listed for 30 days or longer without going under contract increased 12.5% in July from a year earlier, giving buyers some time and some negotiating power. A record share of home sellers are dropping their prices, with just about 8% of homes for sale each week in August experiencing a price drop–and the share is much higher in pandemic boom towns like Boise and Sacramento.
- Buyers are less likely to face competition from investors. Investor home purchases plateaued in the second quarter after skyrocketing in 2021, making them less of a roadblock for regular buyers.
Homes are still 5.9% more expensive than they were a year ago, but that’s the slowest growth rate since the start of the pandemic. And there are ways around high mortgage rates: Buyers can take out an adjustable-rate mortgage, which tend to have lower upfront rates, or they can refinance in the future.
“Sellers are losing some of their leverage, which is helping buyers, who have been through the wringer over the last two years,” said Raleigh, North Carolina Redfin agent Jordan Hammond. “Buyers are excited that homes are staying on the market longer and that some sellers are even dropping their prices. I’m reminding buyers that relatively high mortgage rates shouldn’t stop them if they’re serious about finding a new home, as they’re still historically low.”
The slower market also means house hunters can include contingencies such as appraisals and inspections in their offers.
“Today’s buyers are negotiating, and they expect sellers to work with them,” said Redfin agent Angelica Webb. “If a buyer offers $35,000 below asking price and the seller counters with a $10,000 reduction, the buyer may walk away from the deal. If they ask for a repair after the inspection and the seller refuses, they may walk away. Three months ago, a buyer would have been very unlikely to make an offer under asking price or back out after an inspection. But now that there are more homes for sale and fewer buyers, they can just look at similar properties with recent price reductions or make an offer to a seller who is willing to negotiate.”