While it might appear that home prices are still rising nearly everywhere, there’s growing evidence that some sellers are ready to make a deal in order to entice buyers put off by both prices and mortgage rates.
Real estate marketplace Zillow reports nearly 23% of home sellers reduced their listing prices in January, marking the highest share for this month in Zillow's recorded history. This trend underscores the increasing negotiating power buyers wield, despite persistently high mortgage rates, as the home shopping season kicks off.
While regional competition varies, the San Francisco Bay Area and the coastal Northeast remain fiercely competitive. However, Zillow said most buyers nationwide are likely to encounter price reductions on their preferred listings.
"Homeowners are finally returning to the market as the effects of rate lock ease over time, but buyers are still grappling with high monthly costs," Skylar Olsen, Zillow's chief economist, said in a press release.
"Sellers are in a favorable position and are willing to make price cuts to close deals. Home equity is near record highs, and the general economy and financial markets are surprisingly strong. Homes are selling faster than they did before the pandemic."
Home prices have continued to rise even as sales have slowed, confounding many buyers who expect supply and demand to work in their favor. But lower than normal inventory levels have kept prices near record highs.
Huge gains since the pandemic
Home values have surged by 44% compared to pre-pandemic levels, with a 2.6% increase year over year. However, appreciation rates differ significantly across the country, ranging from an 8.1% rise in San Jose to a 3.4% decline in Austin.
Mortgage rates climbed to 7.04% in January, the highest since May and notably above the mid-6% rates from the previous January. This increase has posed additional challenges for buyers, leading to a 3.6% year-over-year decline in newly pending sales.
Sellers appear less perturbed by rate fluctuations. New listings from existing homeowners rose by nearly 12% year over year. The grip of "rate lock" is loosening as homeowners accumulate equity and face compelling reasons to sell. Zillow's surveys reveal that 78% of recent sellers were motivated by life events, such as job changes or family size adjustments.
Fewer sellers became buyers
Interestingly, only 54% of sellers purchased another home, the lowest proportion since 2018 and a drop from 70% last year. New listings are increasing most rapidly in costly Western markets, with Portland, Seattle, Denver, and San Francisco leading the surge.
Despite buyer challenges, a significant number of sellers are achieving more than their asking prices. Nearly 25% of homes sold in December exceeded their original listing prices, compared to about 19% before the pandemic.
Although high rates are a hurdle, buyers have opportunities to secure deals. Zillow's market heat index indicates that buyers had more negotiating leverage than in any January over the past five years.