People who are shopping for homes are finally seeing lower prices. In market after market, real estate agents report that sellers are beginning to cut their list price if they haven’t received an offer after a few weeks.
As buyers disappeared in June in the face of record-high prices and rising mortgage rates, the market cooled considerably. Instead of selling in a few hours, homes in many neighborhoods have lingered on the market for weeks.
In a normal housing market, taking a few weeks (or even a month or two) to receive an offer is not unusual. But over the last two years, when millions of people who had been renting suddenly decided to buy a home, the market has been anything but normal. Rock-bottom mortgage rates helped to fuel the home-buying frenzy.
Throughout 2021, there were reports of bidding wars driving up asking prices by tens of thousands of dollars. Buyers were signing contracts on properties without an in-person visit and waiving contingencies. Real estate professionals say those days are now over.
June was the turning point
Bloomberg reports that the market began to quickly change in June, when the sale of existing homes fell for a fifth straight month, declining 5.4%. With fewer buyers, sellers began to cut prices, especially in the previously red-hot markets of Las Vegas, Denver, Austin, Nashville, Tampa, and Sacramento. The trend likely picked up speed in July.
“The market we have now is similar to the market at the beginning of the pandemic because that market created uncertainty and, for many, anxiety,” Kathleen Murphy, associate broker at Boston’s Gibson Sotheby's International Realty, told ConsumerAffairs. “The difference is consumers are uncertain about the increasing mortgage rates and out-of-control inflation and less about vaccine availability and hospitalization.
Daryl Fairweather, chief economist at Redfin, told the Wall Street Journal that she advises sellers to embrace the new housing market reality and price their homes conservatively from the start. If there are no offers after two weeks on the market, she advises sellers to reduce the price again by 8% or 10%.
Increasing inventory could push prices down even more
Many real estate experts say homeowners who have not put their homes on the market yet have missed the top of the market as far as prices are concerned. The Biden administration recently took steps to put even more downward pressure on home prices by increasing inventory.
The Treasury Department is allowing local governments to deploy $350 million in unspent American Rescue Plan funds to develop and repair affordable housing units to get them into the nation’s housing inventory.
"Any effort to add supply will help alleviate a historic shortage in affordable housing,” said Leslie Rouda Smith, president of the National Association of Realtors (NAR). “NAR commissioned a landmark research report last year showing a lack of 5.5 million homes in the U.S.—a gap so large it would take more than a decade to dig out of, even with accelerated new construction. It is nothing short of an affordability crisis hurting first-time, first-generation, and middle-income Americans the most.”
Smith said the NAR supports “comprehensive action” that encourages investment in new construction, zoning reforms, expansion of financing, and tax incentives to spur investment in housing and convert unused commercial space to residential – all of which would increase the number of available homes and bring down prices.