Recent years were a boon for home sellers, with intense bidding wars and high offers from wealthy baby boomers. Sellers had the upper hand, reaping substantial profits. However, the market is shifting. While home prices continue to rise modestly, the frenzied demand is cooling. With more options available, buyers are becoming more cautious, insisting on inspections and other contingencies.
Mortgage rates have surged to 7% from record lows below 3% in 2021, deterring buyers and complicating matters for sellers. Those who need to buy another property are finding it difficult to upgrade due to increased borrowing costs. This summer, sellers may face a harsh reality as they might need to lower asking prices or wait longer for offers.
Despite these challenges, home prices are not collapsing, and sales are still happening. For example in the Floridian, a building in South Beach, the highest price ever recorded last week for a 2bed/2bath facing the bay for $1.6M. The number of homes for sale is growing, inching the market closer to normalcy. However, sellers hoping for a resurgence due to lower mortgage rates are facing disappointment. Inflation remains high, and the Federal Reserve plans to keep interest rates elevated. This has led to what CoreLogic's chief economist, Selma Hepp, calls "the year of the head fake."
Many homeowners are reluctant to sell because their current mortgage rates are significantly lower than the current rates. This reluctance is understandable, given that 58% of U.S. home loans had rates below 4% at the end of last year. The difference in monthly payments between a 4% and a 7% mortgage on a $400,000 house is about $600, making it difficult for both buyers and sellers.
Still, life events necessitate moves, and some sellers are coming to terms with the fact that rates won't drop soon. As listings increase in spring and summer, active inventory is expected to grow, giving buyers more leverage to negotiate prices and concessions. According to Altos Research, nationwide inventory is up 33% from a year ago, and more homes are seeing price cuts.
While sellers in some regions, like the Northeast and West, may fare better due to lower inventory levels, areas like Austin and Boise face tougher conditions. Sellers must now price their homes conservatively and address major repairs before listing. This shift towards a more balanced market benefits everyone, though it might leave some sellers feeling like they missed out on the peak market.
Economists emphasize the need for a balanced market, as a weak sellers' market can deter buyers. Despite the slowdown, home prices have still seen significant gains since early 2020. Sellers should focus on current market conditions rather than comparing themselves to those who sold during the peak. As real estate broker Eric Peterson notes, low interest rates can mask many market missteps.
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