Keeping you updated on the market!
April 1, 2019
Doctor Homebuyers face far fewer bidding wars as the housing market cools off
Homebuyers are less likely to get into bidding wars now that the housing market has cooled off a bit.
During the first three weeks of March, a mere 16 percent of buyer offers written by real estate brokerage Redfin faced a bidding war. That is a sharp drop from the 61 percent a year earlier. Redfin operates in more than 85 major U.S. metropolitan markets.
Homes are also staying on the market on average two days longer than during February 2018. This is the largest annual increase since January 2015 and the first annual increase in February since 2011. February generally marks the start of the spring housing market.
Of course, competition varies by market. While San Francisco, Boston, San Diego and Portland, Oregon, see about 1 in 5 offers in a bidding war, those are all down from over 65 percent of offers a year earlier.
“At this time last year, in cities like San Francisco, Seattle and Boston it was rare for a home not to receive multiple offers. The tide has turned,” said Daryl Fairweather, Redfin’s chief economist. “Since the market began to cool down last fall, the number of homes for sale has grown each month, giving buyers more options and more negotiating power. Buyers are searching with less urgency and more frequently able to win offers with contingencies.”
Seattle, which has been one of the nation’s most competitive markets, with prices rising by double-digit percentages for several years, is cooling dramatically. Just 17 percent of offers written by Redfin involved bidding wars, down from 72 percent a year earlier.
The least competitive markets so far in March are Miami, Dallas and Houston. These markets were much hotter last year.
The housing market began cooling last summer, as home prices had overheated and mortgage rates were rising. Mortgage rates peaked in November, and sales suffered dramatically. Price gains have now been shrinking for 10 straight months nationally, and mortgage rates have fallen sharply since November, with rates now lower than they were a year ago.
Improving affordability may bring more buyers out as the spring season heats up. Homebuilders are reporting increased buyer traffic, and mortgage applications to purchase a home surged last week as rates plummeted.
In quarterly earnings releases this week, the CEOs of Lennar and KB Homenoted cautious optimism about the spring market.
“We continued to see choppiness in the marketplace during our first quarter,” said Lennar’s Stuart Miller. “However, during the quarter, mortgage interest rates subsided and ultimately pulled back, and home prices moderated, providing a catalyst for the new home market to correct itself.”
There is slightly more supply on the market now. Inventory of homes for sale at the end of February was 3.2 percent higher annually, according to the National Association of Realtors.
The supply of lower-priced homes for sale is still tight, however. As the market gets busier this spring and more buyers look to take advantage of lower mortgage rates, bidding wars will likely increase.
Looking Ahead: Upcoming Key Market Dates
Mortgage rates see biggest weekly drop in a decade
Homebuyers got a big boost to their purchasing power this week thanks to falling mortgage rates.
“The Federal Reserve’s concern about the prospects for slowing economic growth caused investor jitters to drive down mortgage rates by the largest amount in over 10 years,” said Sam Khater, Freddie Mac’s chief economist. “Despite negative outlooks by some, the economy continues to churn out jobs, which is great for housing demand.”
Closed home sales jumped dramatically in February, compared with January but were still lower annually. Pending home sales in February, which measure signed contracts, were slightly lower monthly and nearly 5 percent lower annually.
“We expect a continued rise in purchase demand,” added Khater.
Homebuyers, however, are still facing overheated home prices and low supply of homes for sale. Home price gains are shrinking, but some markets are still beyond the reach of most entry-level buyers. Mortgage applications to purchase a home moved higher last week, as rates fell.
“What happens in the coming spring months is what is most relevant for the industry and in our attempt to gauge how consumers respond to lower mortgage costs,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “The weekly purchase mortgage data seen yesterday points to a possible green shoots start.”
Lower mortgage rates certainly boost buying power, but the reasons behind lower rates, namely a weaker economy, could diminish buyer confidence. That may be part of what’s behind the drop in pending sales.
“This suggests a mixed sales trend may be on the horizon for spring, as buyer confidence, boosted by more homes and lower mortgage rates, may be challenged by concerns about whether economic growth can continue,” said Danielle Hale, chief economist at realtor.com.
An important read on the economy, the monthly employment report, is set for release at the end of next week. It could move rates dramatically in either direction.