If you're hunting for a house this spring, say goodbye to frenzied bidding wars. And if you're selling, get ready for good, old-fashioned negotiations.
While real estate brokers aren't declaring a buyer's market just yet, demand has definitely cooled since last summer and the upper hand sellers once enjoyed has largely disappeared.
Escalating prices and higher interest rates convinced buyers to step to the sidelines in the fall, slowing the once-runaway market. As 2019's buying season gets underway, several factors are now in the buyer's corner: moderating mortgage rates compared with just months ago and more homes for sale, easing competition.
Nationwide, just 13 percent of offers had competing proposals in January, down from 53 percent a year earlier, according to data from Redfin, which has offices in 85 major metro areas.
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Some of the steepest drops occurred in markets that were once the hottest in the U.S. In San Francisco, the share of sales drawing multiple offers fell from 82 percent to 18 percent; in Seattle, the share dropped from 69 percent to 15 percent;and in Boston they slid from 53 percent to 14 percent.
“Sellers in the areas where we saw the highest appreciation, they can’t expect to see that now,” says Jennifer Johnsen Cameron, a vice president with Coldwell Banker Bain in Bellevue, Washington, outside Seattle. “Sellers need to be realistic about pricing. They can no longer name their price.”
The shift began in the middle of last year after a hot spring homebuying season, says Daryl Fairweather, Redfin’s chief economist. “Buyers backed off because home prices became unaffordable and interest rates peaked,” she says.
In June, the median price of a previously owned home hit $276,500, the highest level for the year. Mortgage rates hovered around 4.8 percent, on their way to above 5 percent in October and November – a seven-year high.
Rates have since moderated, giving buyers an extra $100 or in savings per month on a mortgage payment. Rates are expected to stay below 5 percent this year – thanks to a more patient Federal Reserve, says Lawrence Yun, chief economist of the National Association of Realtors.
That's a reversal from his earlier forecast in December when he predicted rates could hit 5.5 percent by the end of the year. "That's not in the picture currently,” he says.
The good and bad of mortgage rates
Interest rates hit Randall Parker as both a seller and a buyer. In late August, he listed his house in the rural outskirts of Nashville, Tennessee. The house sat for 58 days. By the time he closed on it in October, rates had surpassed 5 percent and school was in session.
“I thought the timing was not good on our part,” Parker, a fuel truck driver, says. “We barely made $10,000 more than what we bought it for.”
But two months later he scooped up a house in Murfreesboro, Tennessee, from a divorcing couple, and without too much competition. Fewer buyers were in the market, spooked by mortgage rates and worries about a looming government shutdown.
“It was a perfect storm for him as a buyer,” says Shawn Wright, his agent with C21 Wright Realty outside Nashville. “He got a great deal.”
Finally, more choices
A build-up of available houses is also helping buyers. For years, many markets suffered from too few homes for sale, especially on the entry-level side. That’s starting to ease – after seven straight months of year-over-year increases in listings – though first-time buyers will see the smallest rise in options.
Paul Danis, a small-time homebuilder in the Bellevue area outside Seattle, noticed the market winds had shifted three to four months ago. The last home he sold closed in February 2018 without ever going on the market. A savvy real estate agent toured it while it was still under construction and sent pictures to her buyers who bought it, sight unseen.
He put another house on the market four months ago. No bites. He dropped the price by 5 percent and it finally just went into contract.
“My wife is a realtor, so she already knew things were adjusting in the market,” Danis says. “We knew we would have to chase this one downhill a little bit.”
In the Seattle metro area, the number of homes on the market in February grew 85 percent year over year, the fourth-biggest increase percentage-wise in the nation, according to data from Realtor.com. Inventory in Denver and San Jose – No. 1 and 2 in in terms of gains of homes available – more than doubled.
“If you’re a buyer, you don’t have to fight as hard," Fairweather says. "You don’t have to worry the house is going to be bid out from under you."
Turning tides in Boston
In Boston, first-time buyers were routinely elbowed out by bidding wars. Now, "They have a little bit more breathing room," says James Major, a broker at Century 21 North East in Woburn and president of the Greater Boston Association of Realtors.
Amanda Gundy and her husband, Jonathan Andrew, made offers for 11 houses in Boston’s northwest suburbs last year, losing out each time despite bidding above asking price. Each drew 15 to 20 competing offers.
Initially, Gundy says, “You start drawing a painting of your life” when making an offer, imagining where their three-year-old daughter would play.
But after repeatedly losing, “You have to detach yourself,” Gundy, 36, says. “It was tough.”
The couple, who had been renting a 1.5-bedroom apartment in Belmont, Massachusetts, progressively lowered their standards, giving up demands for two bathrooms or a garage. They would see a house and say, “Should we? Sure -- whatever.”
“We were definitely thinking of giving up and maybe the area just wasn’t working well for us,” Gundy says. “We were thinking of going to Vermont.”
But in November, they attended an open house for a three-bedroom ranch on a 1.6 acre wooded parcel in Wakefield, Massachusetts, and realized they were the only ones there. They quickly learned there had been another open house two weeks earlier. In the meantime, the owners lowered the price by $10,000.
“I got super-excited,” she says. They still had to bid $6,000 more than the $449,000 list price. There was only one other rival offer and Gundy and her husband won with a final bid of $465,000.
“It was just like an instant flood of relief,” Gundy says. “I started entertaining daydreams of running around the yard with our daughter.”
They closed in December.
Previously, many buyers waived contingencies that made sales dependent on home inspections or loan approvals. Some even bought houses sight unseen. Such concessions are now far less common, Fairweather says.
Despite the cooling market, buyers still don’t hold all the cards. To make your offer the most attractive, do more than just get a mortgage preapproval, says Wright.
“This can make your offer strong and competitive against cash buyers,” Wright says.
- Ask your lender to run you through most of the underwriting upfront.
- Shorten the contingency window and promise a faster home inspection and appraisal.
- Offer proof of funds to show the down payment money is in the bank already.
- Consider writing a heartfelt “love” letter to the seller, explaining why this house is the one for your family.
Smart pricing is the key this year for sellers. Don’t get too ambitious.
“In the past couple of years, you would go right to top of the comp range for your listing price and the house would sell quickly,” says Wright. “Now you have to go to the middle or bottom of the comp range to even draw traffic.”
- Get inspections done upfront and make repairs before putting the home on the market.
- Many updates or small renovations that can make your house look move-in ready
This article originally appeared on USA TODAY: Goodbye bidding wars: Homebuyers gain edge in this year's housing market