A cooling housing market gives home buyers more leverage
Years of soaring home prices and sharply higher mortgage rates remain hurdles for many would-be home buyers, but new data show that they’re regaining some leverage at the negotiating table as the housing market slows.
An analysis of home sale data by Redfin shows that, on average, U.S. homes purchased during a four-week period in August sold for less than what sellers were asking. That hasn’t happened since at least March 2021, according to the real estate brokerage.
“The only times you get homes going above list price is when there’s a bidding war, and those used to not be a regular occurrence,” said Daryl Fairweather, Redfin’s chief economist. “And we’re back to a place where bidding wars are unusual, not the norm.”
The average sale-to-list price ratio, a measure of home sale prices relative to their asking prices, fell to 99.8% in the four weeks that ended Aug. 28, Redfin said. The ratio was 101.4% in the same stretch last year. Ratios above 100% indicate homes on average are selling above their asking prices.
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For Los Angeles County homes sold in August, the ratio slipped to 100.5%, indicating that sellers still have the upper hand — just barely.
For most of last year and this year, fierce competition for relatively few homes on the market and rock-bottom interest rates fueled bidding wars that often led to houses selling for well above their list prices.
That remained the prevailing trend until recently, even though the housing market has cooled significantly since spring as mortgage interest rates have surged sharply. Higher mortgage rates make homes less affordable, thinning out the pool of home hunters, which leaves sellers with less leverage when negotiating with buyers.
Average long-term U.S. mortgage rates jumped again this week, hitting the highest levels in almost 14 years and pushing even more would-be buyers out of the market.
Mortgage buyer Freddie Mac reported Thursday that the 30-year mortgage interest rate jumped to 5.89% from 5.66% last week. That’s the highest the long-term rate has been since November 2008, after the housing market collapse set off the Great Recession. One year ago, the rate stood at 2.88%.
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The average rate on 15-year, fixed-rate mortgages, popular among those looking to refinance their homes, rose to 5.16% from 4.98% last week. That’s the first time the 15-year rate has been above 5% since 2009, as the real estate market went into a years-long slump. Last year at this time the rate was 2.19%.
On average each week, 7.5% of homes for sale tracked by Redfin during the four weeks in August had a price drop, a record high, the company said.
That the typical home is now selling for below the asking price is a sign that the housing market is becoming a bit more balanced, or at least less skewed toward sellers.
“It’s significant that now buyers know that when they’re bidding on a home, chances are they can get it for less than the asking price and without a competing offer, which was not the case earlier this year,” Fairweather said.
That doesn’t mean homes aren’t still drawing multiple offers. Some 37% of homes purchased in the four-week stretch of August analyzed by Redfin sold for more than their list price. That was down from 50% a year earlier, Redfin said.
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And buyers must still contend with rising home prices, albeit not as sharply as before.
The national median home price jumped 10.8% in July from a year earlier to $403,800, according to the National Assn. of Realtors. The median is the point at which half the homes sold for more and half for less.
Redfin’s latest home price data, for the four weeks that ended Sunday, showed the U.S. median price up 6% from the same period a year earlier, at $369,748. Two California cities posted year-over-year price declines, Redfin said: San Francisco, where the median dropped 7% to $1.4 million, and Oakland, where the median fell 1.4% to $933,250.