The housing market is shifting. The white-hot seller’s market that made it nearly impossible for buyers to find a house without cash in hand is cooling. You may have heard it on the news, seen it online, or simply noticed that the house around the corner has been on the market longer and still hasn’t sold. So, what does this mean for buyers and sellers? First things first. With all this talk about what kind of market we’re in, it’s a good idea to clarify what a seller’s market is as opposed to a buyer’s market.
In a seller’s market, the seller has the advantage. Typically demand for homes is high and supply is low. The economic principles of supply and demand come into play here. When the demand is high and supply is low, there’s greater competition among buyers. The seller can list their home at a higher price. Homes sell quickly (sometimes before the realtor can even get photos uploaded to the MLS or Realtor.com). There are more bidding wars, and often home loan borrowers are locked out because sellers prefer cash buyers.
In a buyer’s market supply is up and demand is down or decreasing. With more homes on the market, buyers have more options. Homes tend to linger on the market longer during a buyer’s market. Seller’s must make the choice of competing with other sellers and negotiating the asking price or letting their home sit on the market. We’ve been in a seller’s market for quite a while, but with interest rates rising and inflation at an all-time high, the marketing is cooling.
Where does that leave buyers in this market?
Although the market hasn’t completely shifted (homes are still selling relatively quickly). In the last four months, more homes have been listed for sale than a year ago at this time. Homes are on the market a little longer than in 2021 and sellers are reducing their listing prices even in some of the hottest markets.
As the market shifts, it would seem there is some relief in store for buyers who can qualify for loans. While they can’t do anything about the interest rates, buyers can do some things to make the most of the changes in the market.
You have more time when making offers. Take advantage of it. It wasn’t long ago that you needed to be prepared to put an offer in immediately. Unless the house is competitively priced, you can spend a little more time looking before making an offer. Still, you need to make sure you have your pre-approval in hand before you start shopping.
Look at prices of comparable homes before putting an offer in. If the home you’re considering is listed at $550K and comparable homes are $475K, you can make a lower offer. You may, however, be dealing with an owner who doesn’t need to sell but simple wants to cash-in on the hot seller’s market. In which case, they may not negotiate. Your realtor (we recommend using one) may be able to get some insight on the listing price from the seller’s agent.
Shop around. Don’t just look at the prices, and let some scare you off. Some may be overpriced, and you may be able to negotiate now. So, look at the homes. See as many as possible, even if you think you’ve found the one you want. There’s nothing like seeing the competition to help when comparing prices and deciding on an offer.
What about sellers?
Competitive pricing is important. You need to be realistic. While home prices are significantly higher than they were a year ago, you have more competition now. If you really want to sell, price your home competitively or else don’t be surprised when lower offers come in.
You may have to do more work on your home before listing. More competition means buyers can compare you home to others. In 2021, cash buyers were snatching up “as is” listings. You may have to do more in this shifting market to get your asking price. Clean, make repairs, and stage your home to make it stand out.
Know when it’s time to drop the price. Despite hopes of benefiting on what might be the tail end of the seller’s market, some sellers are having to lower their prices and expectations as some buyers have backed out due to high interest rates while others are taking their time and refusing to pay the inflated asking price. If interest has waned in your home, it’s sitting on the market longer than the average and you’re not receiving offers, or your home has appraised lower than your asking price, then it’s time to consider lowering your asking price.
Whether you’re selling or buying, it’s important to pay attention to the shift in the housing market. It’s still a seller’s market, but the pendulum has started to move closer to the center. The unprecedented increase in home prices over the last year won’t repeat itself in the year to come. With the increase in interest rates, buyers are getting less bang for their buck which means many will wait to purchase a home until prices drop. With less demand, homeowners, who need to sell, will have to lower their price expectations. With inflation and talk of a full-fledged recession, it’s hard to predict what’s to come, but some decrease in home prices should be expected.