Fewer buyers engaged in home bidding wars
Home bidding wars happen when two or more buyers compete for the same property. The price goes up until one party backs out or the seller accepts one of their bids. This was a common occurrence over the past few years. That’s when the housing market decidedly favored sellers and inventory was lower than it is today.
New research indicates that home bidding wars happen much less often nowadays. This is even true in pricey markets where real estate can be expensive.
This is good news for would-be buyers. They don’t have to compete as hard with rival shoppers. Plus, they have more homes for sale to choose from. Also, interest rates have been lower lately. All of these factors are making this a better time to purchase a home.Ready to buy a home? Start here. (Aug 14th, 2020)
What the data show
A new report by Redfin had some interesting findings. In January 2019:
- Only 13 percent of offers written by Redfin agents (for their buyer clients) involved a bidding war. That’s down from 53 percent a year earlier.
- The home bidding wars rate dropped significantly in every market where Redfin agents serve.
- The markets with the largest percentage point declines in the rate of home bidding wars were: San Francisco (-64%); Los Angeles (-57%); and Seattle (-54%).
- The markets with the smallest percentage point declines were: Austin (-11%); Raleigh (-13%); and Chicago (-29%).
- The most competitive markets were Portland, Denver and San Diego; yet in each less, than one out of five Redfin offers faced home bidding wars, down from more than half a year prior.
Meanwhile, the housing supply has been going up. In January 2019:
- Home sales dropped for the sixth consecutive month. This resulted in the largest inventory increase in a decade, per the latest RE/MAX National Housing Report.
- Inventory jumped 6.4 percent from a year earlier across the 54 markets RE/MAX studied.
- Annual inventory grew for the fourth straight month. This reversed a 10-year trend of decreasing supply.
Reading between the research
Daryl Fairweather, Redfin’s chief economist, says these findings are important.
“We’re seeing interesting trends in higher-priced metros, such as Seattle, San Francisco, Los Angeles and New York. Many residents there are looking to leave in favor of more affordable areas,” she says. “For example, the fastest-growing housing markets in the country right now are Buffalo, Grand Rapids, and Omaha.”
Fairweather says the simple law of supply and demand is at work.
“Over the last few years, home prices increased rapidly to the point that there weren’t as many buyers willing to pay those high prices. At the same time, interest rates had been going up and peaked in November 2018. Homes began receiving fewer offers and started sitting on the market longer.,” she adds. “As of December, the number of homes for sale was up 5 percent year to year. And the number of homes sold was down 11 percent.”
Keith Baker, Mortgage Banking Program coordinator and faculty at North Lake College, agrees.
“Most demand that had pent up due to the Great Recession has been filled,” says Baker. “So those left in the market, especially millennials, are now faced with an increased inventory of new construction and starter homes. Many of these home types allow choices not readily available in existing homes for sale. This causes downward pressure on home values of older homes.”
Inventory is also rising because buyers are slowing down to look closer, believes Keith Robinson, chief strategy officer at NextHome.
“There’s a sense that we are near a top of the market, and no one wants to buy at the top. When the buying side demand slows down, it puts upward pressure on inventory,” says Robinson.
What these data mean to buyers
All of which is good news to home shoppers.
“Buyers know that the market has slowed,” Fairweather notes. “So they are able to focus on obtaining all of their wants versus just their needs when purchasing. Buyers don’t have to settle for a house that needs work or doesn’t have features like a two-car garage or spacious kitchen.”
What’s more, “over one in five homes for sale nationwide dropped its price in the last month. That’s even further evidence that 2019 is a good year for buyers,” adds Fairweather.
Even more good news: “Nearly anyone who wants one has a job. Consumer confidence is really high,” Robinson says. “And it would appear that the underlying markets are healthy.”
The moral to the story? “If you’re a buyer, today is a better day to be looking for a home than a year ago,” says Baker.
Act now while conditions are good
The experts concur: If you have the means, take advantage of current market conditions and buy while home bidding wars are down.
“Think long term, but act with urgency. Real estate is a long-term investment, true. But fortune favors the bold. So if you find the house you want, go for it,” suggests Robinson.
But first, position yourself properly.
“Do a full check of all your finances,” says Fairweather. “Compare rental costs with mortgage payments in your area. Realize that a lot of hidden fees, like maintenance costs, come with owning that you might not consider.”
Shop around for lenders and rates carefully. And get pre-approved for a loan well before you go home hunting. Enlist the aid of a skilled real estate agent, as well.
“Work closely with your agent to find a home with the features and neighborhood you really want,” Fairweather recommends.
Lastly, don’t rely on internet research alone.
“Tour each home in person,” says Fairweather. “Take note of the surrounding community and what it has to offer. Also, explore local data and home prices so that you’re not caught off-guard by home bidding wars, as some neighborhoods are still quite competitive.”Verify your new rate (Aug 14th, 2020)