Housing Market Shows Signs of Shifting Toward Buyers, But It’s Not a Buyer’s Market…Yet
While home prices continue to climb, hitting new record highs, experts are seeing signs that the housing market is becoming more favorable for buyers in certain regions. Despite this shift, mortgage rates remain elevated, making affordability a significant challenge for many potential homebuyers. This article will explore the key indicators suggesting a more balanced market and highlight the factors that are still impacting buyer decisions.
Key Takeaways:
- Home prices: Despite new record highs, the housing market is showing signs of shifting towards buyers.
- Mortgage rates: While they have declined from their peak, mortgage rates remain expensive, limiting affordability for many.
- Inventory: Housing inventory is rising, giving buyers more options and potentially leading to less competition.
- Sales: Home sales have slowed down, partly due to rising mortgage rates, which is a positive sign for buyers.
A More Neutral Market Emerges
While the housing market remains challenging for many buyers, there are indications that it’s becoming more balanced. "The term buyer’s market is always a bit tricky to work with," says Chen Zhao, the economic research lead at Redfin. While it isn’t quite a buyer’s market yet, "things are certainly tilting more towards buyers, I would say maybe it’s coming more into balance," she adds.
Orphe Divounguy, a senior economist at Zillow, agrees, stating that "we’re still nationwide somewhat in a seller’s market, not a buyer’s market yet." However, "there’s good news for buyers on the horizon."
Four Signs That Indicate a Shift in the Market
Here are four key indicators that suggest the housing market is on its way to becoming more neutral and potentially favoring buyers:
1. Homes Are Lingering Longer on the Market
As homes stay on the market for longer periods, buyers have more time to consider their options and potentially negotiate a lower price. Redfin data shows that 64.7% of homes listed in June were on the market for at least 30 days, up from 59.6% a year ago.
Zillow data also confirms this trend, with homes now on the market for 46 days on average, compared to 35 days last year and a mere 19 days in 2021. This suggests that inventory is increasing, and sellers may be less likely to receive multiple offers, giving buyers more leverage.
2. Buyers Are Backing Out of Agreements
In some areas, buyers are abandoning purchase agreements before closing, often due to concerns about affordability or finding the perfect property. Redfin reports that 56,000 home purchase agreements were canceled in June.
"Buyers are getting more and more selective," explains Julie Zubiate, a Redfin Premier real estate agent in the San Francisco Bay Area. "They’re backing out due to minor issues because the monthly costs associated with buying a home today are just too high to rationalize not getting everything on their must-have list."
3. Sellers Face Increased Competition
As inventory levels rise, sellers are encountering more competition, which can impact their ability to demand premium prices. Total housing inventory reached 1.32 million units at the end of June, a 3.1% increase from May and a significant 23.4% bump from a year ago.
This increase in inventory is creating a more competitive landscape for sellers, and buyers are finding themselves with more options. While the competition is easing in some regions, notably in the South, other markets still face unique challenges.
4. Sellers Are Reducing Prices
The shift in market dynamics is evident in the increasing number of sellers who are lowering their asking prices to attract buyers. Zillow data shows that one in four sellers are reducing their prices, the highest level for any June in the past six years.
Redfin also reports that 19.8% of homes listed in June had a price cut, exceeding the previous record for any June. This shift signifies that sellers are recognizing the changing market conditions and are adapting their strategies to remain competitive. Home builders are also adjusting their pricing, with 31% cutting prices in July, up from 29% in June and 25% in May, as they strive to stimulate sales.
The Impact of Rising Inventory on Buyers
The increase in housing inventory is a significant development for buyers, giving them more choices and potentially reducing the need for bidding wars. However, it’s essential to remember that the market is not uniform, and some regions are experiencing more inventory growth than others.
"With more inventory, that does certainly mean that buyers have more options," says Selma Hepp, chief economist at CoreLogic. "But that is very regional. And the ones with the most increases in inventories, they’re struggling with other issues." This highlights the importance of local market analysis when assessing the true impact of inventory changes.
Affordability Remains a Major Hurdle
While the housing market is shifting towards a more balanced landscape, affordability remains a significant barrier for many potential buyers. Mortgage rates are still elevated, putting a strain on budgets and limiting the number of buyers who can qualify for loans.
The average 30-year fixed-rate mortgage nudged up to 6.78% in mid-July, remaining well above the historical average. "You really don’t think about insurance and taxes," says Hepp. "Then you get the first estimate from a lender and then you decide to back out."
The Path Forward for Buyers
For buyers navigating this evolving market, it’s crucial to stay informed about local market conditions and to work closely with a real estate agent who understands the nuances of their area. Buyers should also carefully assess their budget and potential financing options to determine what they can realistically afford.
This period of market transition does offer possibilities for buyers who are prepared and well-informed. As inventory increases and sellers become more competitive, buyers may have increased leverage to negotiate better deals and secure their dream home.
However, it’s essential to acknowledge that the market is dynamic, and conditions can change rapidly. Buyers should stay flexible and prepared for a potentially complex and unpredictable journey.
