The balancing act that is the housing market is finally starting to tilt back the other way.
For the first time in about two years, the housing market is back to what it was for ages. We now are starting to get a surplus of homes on the market and a lack of people buying them up. This means homes are sitting for more than 72 hours. Consumers are getting home inspections and appraisals before making an offer. The cash offer is starting to become less and less common. In essence, the American people are getting smart again.
August 26th saw data issued by real estate site Redfin indicating that more than 15% of homes in the nation’s 100 biggest cities were dropping in price. The spots that burned the brightest during the pandemic were dropping the most. In reports from agents, only 44.3% of the homes they sold had a bidding war, meaning a house with more than one offer. This was the lowest percentage that they have seen since the pandemic started.
Out of those 100 cities, 27 cities saw 40% or more of their inventory had to have the price slashed before the home would sell. While this could certainly be chalked up to the astronomical interest rates, the fact of the matter is sellers and agents got greedy. Boise Redfin agent Shauna Pendleton issued a statement about this problem.
“Individual home sellers and builders were both quick to drop their prices early this summer, mostly because they had unrealistic expectations of both price and timelines. They priced too high because their neighbor’s home sold for an exorbitant price a few months ago, and [they] expected to receive multiple offers the first weekend because they heard stories about that happening.”
While they hate the idea of dropping the price, they don’t have a choice in the matter. With 19.1% being forced to take a price cut, it’s much higher than the 9.4% back in 2021. The bidding wars that defined 2020 are now long gone. While earlier in the summer the competition was fierce and roughly 2/3 of homes would receive offers quickly, this has ended as it simply wasn’t sustainable.
The only thing that pushed the cart down the road this hard was the push by places like Redfin and Zillow to buy up properties and resell them themselves. With no inspections, just a deed search and some pictures, they were happy to take these homes off people’s hands and relist them hoping to make a profit.
What they quickly learned was that they vastly overpaid for the market, and they are now stuck taking a loss. This isn’t just a small loss either. In some instances, they have taken a 25% or higher loss for simply not doing their proper due diligence on the property.
Another problem was the cash buyer who is now seeing how high the interest has gotten and now sees that there isn’t enough meat left on the bone to make money buying up properties left and right for their portfolio. Materials for flippers have gotten too expensive for the prices people were asking, so they too had to back off. This glut of houses will only help drag the pricing back down where it truly belongs.
Shoshana Godwin, a Seattle-based Redfin real estate agent also issued a press statement about the situation. “While the market is cooling, it’s not coming to a crashing halt. House hunters who can still afford to buy should consider taking advantage of the slowdown given that there’s way less competition.” While she isn’t wrong, not many can afford to do anything with interest rates that only look to go even higher in the coming months.