Tables are turning to buyer’s market
If you’ve been looking for a home to buy, you have probably been frustrated by the tight housing market. But the tide is turning from seller’s to buyers’ market.
- Available inventory is up
- Home prices are increasing at a slower rate
- The number of sales is and bidding wars are declining
Housing market signs that are favorable to buyers
The market has been friendly to sellers now for several years in many areas. Sellers have been fetching top dollar for homes. And buyer competition has been high.
But recent housing market data from Redfin suggest that things are looking up for buyers:
- Completed home sales dropped faster than it has in over two years. Sales are down 8.3 percent from November 2017.
- Home sale prices rose 3.3 percent in November 2018 compared to a year earlier. That marked the third straight month of annual home price gains under 4 percent. Prior to that, there was a 77-month-long streak of annual home price gains over 4 percent.
- A typical home sold in November 2018 went under contract in a median of 44 days. That’s two days faster than a year earlier.
- Inventory of homes for sale is rising. Year-over-year growth in homes for sale reached a three-year high in November 2018, at 4.9 percent.
- Bidding wars are down; 32 percent of offers written by Redfin agents for their home-buying customers in November 2018 faced competition (one or more competing bids). That’s down from 45 percent one year earlier. And it marks an all-time low since Redfin started tracking this metric in 2011.
How to interpret this data
Daryl Fairweather, chief economist at Redfin, says these findings are revealing.
“It’s telling that the number of completed home sales were down so far year over year in most of our major metro markets. Higher mortgage rates might be one factor. They could be putting a damper on sales,” she says.
But it could also be a sign.
“Maybe buyers are finally fed up with increasingly high home prices,” says Fairweather. “They might be waiting for sellers to adjust their expectations. Or buyers could be changing their plans to buy a home entirely.”
She notes that the housing market always cools in the fall and winter.
“But this cooldown is more than just seasonal. Home prices were up over 9 percent from March 2017 to March 2018. Yet they were only up 3.3 percent from November 2017 to November 2018,” Fairweather adds.
“Sellers have been slow to react to the new reality—that buyers aren’t willing to keep paying more for homes. As a result, we’ve seen fewer sales and more homes sitting on the market.”
Real estate attorney Elizabeth A. Whitman says other factors may be at work, too.
“Investment income is down,” notes Whitman. “After several bull market years, the S&P 500 had a downturn in 2018. Some buyers may have suffered savings losses. That makes it more difficult to make the required down payment on a home.”
Plus, the 2017 Tax Cuts and Jobs Act eliminated all but $10,000 of state and local tax deductions.
“These changes reduced the tax benefits of home ownership,” Whitman adds.
How buyers can benefit
Don’t let these numbers make you nervous. Instead, view them as an opportunity—one that can increase your changes of owning.
“This is great news for potential buyers. It means you now have more options,” Fairweather says. “You now have less competition. So you can take a less frantic approach to the buying process. You’re more likely to purchase a great home for its asking price. You likely won’t have to offer more money or waive important offer contingencies.”
Consider that, a year ago, buyers had to move quickly or risk getting beaten by a faster buyer. They often had to commit to purchasing a home before knowing if they’d been approved for a mortgage. Many also couldn’t afford to wait for a professional home inspection.
“Now, buyers have more power. They don’t have to take on those risks,” adds Fairweather.
“Excess inventory is good news for any buyer who can afford to purchase,” she says. “Buyers who plan to remain in their home for several years would be well advised to buy now.”
Also, “personal income has been growing. And it may catch up to the increase in home values. That means right now is a good time to purchase,” says Bruce Ailion, Realtor and real estate attorney.
Steps you can take
Eager to take advantage of these housing market factors favorable to buyers? Want to improve your odds of buying sooner? Try these tips:
- Improve your credit score. Check your free credit report. And correct any problems you spot.
- Save up for a minimum down payment. “If you have sufficient cash and a secure income, consider putting more than the minimum into your down payment,” says Whitman.
- Shop around for lenders. “Talk with a mortgage lender, and get pre-approved for a loan. This way, you know exactly what you can afford. You won’t waste time once you’re ready to make an offer,” Fairweather suggests.
- Consider different loan products. A fixed-rate interest loan offers stability; but it locks you into a rate that remains static, even if interest rates drop. “Consider an adjustable rate mortgage (ARM) if it enables you to buy your home sooner,” says Ailion. “Buying a starter home and then selling soon to get into a move-up home can be far more expensive than buying a move-up home today with an ARM.”
Finally, choose a real estate agent you trust. “Talk to your agent about the top features in a home you can’t live without. Be flexible on the rest. This will help you more easily find a home,” says Fairweather.Verify your new rate (Feb 22nd, 2019)