While home sellers may enjoy watching potential buyers compete for their properties, the housing market is experiencing a decline in bidding wars, giving those buyers who remain on the fence more choices and negotiating power.
The market appears to be slowing from the surge in recent months. According to Sam Khater, Freddie Mac’s chief economist, mortgage application purchase demand has slowed slightly, owing primarily to affordability constraints caused by high home prices. In 2021, home values increased faster than ever before. The median sales price for an existing property was $346,900, up 17% from the previous year. As per Freddie Mac, the average rate for a 30-year fixed-rate mortgage recently surpassed 5%, the highest rate in over a decade and following record-low rates of 2.65% in January 2021. Bidding wars are expected to cool further in the coming months as rising mortgage rates drive more buyers out of the market.
The National Association of Realtors (NAR) reports that the median percentage of offers on recently sold homes has dropped significantly in recent months.
The graph shows that earlier this year, homes received an average of five offers. However, according to the most recent data, the average was just shy of three offers for each recently sold home. This shift is largely due to rising mortgage rates, which have reduced buyer demand and halted home sales. As a result, there is an increasing supply of homes available on the market. Essentially, buyers will have more opportunities.
Competition remains fierce, but the good news is that buyers must make fewer offers to win bidding wars. The recent press release of Zillow shows the most common misconceptions among home buyers and sellers in a changing market. According to the report, buyers appear to take advantage of today’s more favorable market.
“If prices or mortgage rates take a meaningful dip, all those sidelined buyers will likely come rushing back to the market, driving up competition and prices. If a buyer can purchase today, they have bargaining power, more options and more time to find the right home, instead of being rushed into a purchase they might regret.”
– Michael Perry, Agent at The Perry Group
With the housing market tilting increasingly in favor of buyers, sellers should ensure that their property is move-in ready and not overpriced. Home buyers are scheduling four-day tours instead of one, and they’ve become more selective. If a house does not tick all of their boxes, they will keep looking until they locate one that does. Buyers were bidding on three to five homes before winning a few months ago. It’s now closer to one to two. An aspect of this is due to buyers realizing the market’s reality: they’ve become much more informed about what they need to do to succeed, so they don’t need to make as many offers.
The Bottom Line
As competition continues to ease, those who can still afford to buy should benefit from fewer competing offers and may no longer have to offer significantly more than the asking price to win. If you have put your plans on hold due to massive bidding wars in past years, it may be the moment to start and finish your home search. Bidding wars are easing these days, which may mean less competition if you’re a buyer. It’s time to talk to your trusted housing market expert about what you can do to make the most of your real estate investment.
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