- The US real estate market is slowing down.
- It’s because inflation and interest rates have priced out many potential buyers.
- As demand wanes, there are three key signs competition is easing.
Over the last few years, purchasing a home has felt a lot like competing in a triathlon.
However, instead of vying for a trophy, home buyers have duked it out for the nation’s limited amount of housing inventory.
Spurred on by historically low mortgage rates and the desire for larger living spaces during the pandemic, intense buyer competition led to severe bidding wars that have driven home prices to new highs.
As the race to homeownership slows down, experts told Insider there are three key signs that buying a home is becoming less competitive.
There are fewer bidding wars
The Federal Reserve’s efforts to bring the economy into equilibrium have effectively put an end to pandemic-era mortgage deals.
That’s because their attempts to combat soaring inflation have resulted in interest rate hikes that have pushed mortgage rates to unaffordable levels.
As prospective homebuyers now face monthly mortgage payments that are more than $400 higher than they were just a year ago, many would-be buyers are putting their homeownership dreams on pause.
With fewer buyers in the market, those who can still afford to purchase a home are experiencing fewer bidding wars — and that means homebuyer competition is easing.
Indeed, the bidding-war rate dipped below 50% in June, real estate brokerage Redfin said in a housing report link. June not only represented the lowest share since May 2020 – a time when the Covid-19 pandemic nearly brought the housing market to its knees – but it was the fifth consecutive month of declines.
“Homes are now getting one to three offers, compared with five to 10 two months ago and as many as 25 to 30 six months ago,” Jennifer Bowers, a Redfin agent, said in the report. “Offers also aren’t coming in as high above the list price as before.”
Sales prices coming in below asking prices
Almost 80% of Americans now believe it’s a bad time to buy property, according to Fannie Mae’s Home Purchasing Sentiment Index, citing interest rates and inflation as the big reasons.
As a result, an increasing number of home sellers are lowering their asking prices, according to Redfin — about half of the metro areas in their recent analysis showed that more than 25% of home sellers dropped their asking prices in May. And more than 10% of home sellers dropped their price in all 108 metros that they looked at.
“There are two kinds of sellers in today’s market: Those who already know the market has cooled, and those who are learning about the cooling market as they go through the selling process,” Daryl Fairweather, chief economist at Redfin, said in a statement.
According to her, the former is “willing to price slightly below comparable homes in their neighborhood right away” while the latter “may have to drop their price if their home doesn’t attract buyers within a few weeks.”
More people are backing out of contracts
The housing market was cutthroat for most of the pandemic, with aspiring homebuyers fighting to get their feet in the door — but now those feet are getting cold.
About 60,000 home-purchase agreements fell through in June, or 14.9% of homes contracted last month, according to Redfin. That’s the highest rate ever recorded, except for March and April 2020, when the beginning of the COVID-19 pandemic halted nearly all homebuying.
Two factors are pushing that trend, the firm’s researchers said: the cooling housing market is giving buyers room to negotiate, but others have no choice but to pull out of their contracts, because higher mortgage rates have priced them out of homeownership.
At the end of May, 78% of US homebuyers said they were pulling back from the housing market due to rising interest rates in a Forbes survey.
And many who remain in the market are adding contingencies to their housing contract, allowing them to rescind an offer if a property fails an inspection, for instance. It’s a sign homebuyers are gaining the upper hand against sellers and retaking the power to back out of unsatisfactory deals.
Rising housing costs brought on by economic instability have led to less competition in the real estate market. As buyers bide their time and become more selective, sellers are losing the leverage they’ve wielded for the past two years. For Americans who can still afford a home purchase, this could mean they now stand a better chance at getting the homes they want.