BAM Key Details:
- Redfin reports signs of a housing market recovery after a trough in the second week of November 2022.
- Economists say recovery has begun, with homebuyers returning to the market—but sellers have been slower to jump back in.
It’s not every day Redfin reports signs of a housing market recovery. And while the report highlights the differences between today’s housing market and the low point it reached in the second week of November, it corroborates testimonies from agents in the field.
So, no, as Redfin’s economists pointed out, we’re not out of the woods just yet. But there’s more to these signs of recovery than a few more buyers jumping back into the market.
Here’s what you need to know.
Home buyer activity is up
The number of Redfin.com users requesting first home tours has increased 17% from its trough in November. And the number reaching out to Redfin agents to start the home buying process has gone up 13%.
Those numbers are down 23% and 27%, respectively, compared to a year ago, but they’re up significantly from November when both show annual declines of 40%.
Redfin agents are reporting an increase in sales, with some markets continuing to see bidding wars.
Home buyer demand is still lower than it was in early 2022, but the housing market has shifted into a new and more welcoming phase. Well-priced listings are getting more offers more quickly.
Power dynamics shift in favor of home buyers
Just as Byron Lazine and Nicole White noticed in their markets, more home buyers are entering the market, acclimated to the 6% mortgage rates. Some are even getting rates in the high 5s, but even 6s are a relief after rates soared into the 7s last fall.
Source: Redfin
This new phase of the market is also a more buyer-friendly one, which has many agents wondering how to articulate the unique buying opportunity explained in a recent BAM webinar with Byron Lazine and KCM President David Childers. (Read the full breakdown here.)
Redfin agents are seeing more homes go under contract in January than in the entire fourth quarter of 2022. Listings that sat on the market last November and December are suddenly getting offers.
Mortgage applications have increased 28% from early November 2022, thanks to the 30-year fixed mortgage rate’s decline from 7.08% to 6.15%, marking the steepest 10-week decline since 2009. That drop has shaved 10% or about $180 from the typical buyer’s mortgage payment.
Pending home sales increased by a seasonally-adjusted 3% month over month in December, the first such increase in 14 months.
In some markets, buyers are even getting homes for under the asking price. In others, the market is favoring sellers, with homes getting multiple offers.
The return of bidding wars
Buyer demand is increasing across the country—but more in some pockets than others. Homes that elicit bidding wars tend to check the following boxes:
- Affordable
- Suburban
- Single-family
- Move-in ready
- Priced competitively
Most properties that don’t fall into this category are sitting on the market a bit longer.
Preliminary data on the percentage of offers from Redfin agents facing bidding wars indicates small increases in the Seattle and Tampa markets this month. Redfin economists expect it will take some time before bidding wars show a nationwide upward trend.
Redfin agents in Seattle are seeing properties sell for six figures over the asking price with more than 10 offers and buyers waiving every contingency.
One agent mentioned a property that had recently been delisted after sitting on the market for three months. The seller relisted the home in January, and it went pending in under a day.
Meanwhile, in Tampa, Redfin’s team manager has seen bidding wars with 16, 17, and 23 competing offers, respectively, on three modest single-family homes priced at about $300,000.
In Palm Beach, most well-priced homes are attracting multiple offers, though competition is still a far cry from 2021 levels. Homes in popular locations with recent renovations or upgrades are the ones getting the most offers.
Properties in desirable school districts that are priced competitively and are in good condition are flying off the market within days or even hours of listing. Homes that tick those boxes and come with asking prices under $400,000 are selling within a weekend or less.
Even million-dollar homes that are in excellent condition are selling within days.
In Boise, Idaho, on the other hand, bidding wars are rare, if they happen at all, despite home prices dropping year over year since November.
Condos and expensive homes are a tougher sell
Sellers of condos and expensive homes are offering more concessions to close deals with buyers. Condo sellers in the Washington, D.C. area, in particular, are having a harder time incentivizing buyers.
Some have given the buyer a small percentage of the list price back in cash, which the buyer can then use to buy down their mortgage rate.
There’s plenty of buyer demand for modestly-priced suburban homes. For the moment, though, super high-end properties have been more difficult to sell. The high property taxes in some areas make buying a million-dollar home impractical for most people.
Sellers have been more cautious about returning
Even as home buyer demand increases, the biggest factor behind the bidding wars is low inventory.
As a general rule, sellers are slower to react to a shifting market. When mortgage rates fall, buyers tend to respond more quickly, with sellers taking notice and joining in months later.
Would-be sellers in 2023 are also more sensitive to differences in the mortgage rate, since 85% of current mortgage holders have a rate well below today’s rate of roughly 6%.
That said, Redfin agents have seen a 10% uptick in the number of homeowners contacting them to sell their homes compared to last November. But they’re not seeing a significant nationwide increase in home listings.
New listings even saw an annual drop of 18% during the four weeks ending January 22 (2023), the smallest drop in almost three months but much larger than the 8% drop a year earlier.
In their conversations with Redfin agents, homeowners have expressed fear about listing their homes at a time when home price growth is shrinking and buyers have more negotiating power.
They’ve heard there’s no buyer demand—or not enough—so many are waiting, especially if the lock-in effect makes it all the more necessary for them to sell at (or above) their preferred price, so they can buy down the mortgage rate on their next home.
Redfin economists expect an increase in sellers entering the market as buyer demand increases and home price growth stabilizes, especially considering the pent-up supply from sellers who had to delist their homes in the fall when the market slowed.
Market recovery will vary from block to block
As inflation and mortgage rates continue to decline, the housing market will likely thaw more broadly and consistently in the weeks and months to come.
In the meantime, though, some neighborhoods will see homes embroiled in fierce bidding wars while sellers in other neighborhoods will wonder, “Where is this buyer demand you speak of?”
The market is warming, but it’s still far from the pandemic buying frenzy—and even the pre-pandemic market. Agents in select markets and neighborhoods across the U.S. are seeing dramatic increases in buyer activity, while others are hearing crickets.
This rebound in the housing market could hit a roadblock if the Fed’s progress toward getting inflation under control slows or even reverses course.
Also, the U.S. labor market is likely to soften this year, likely due to the Fed’s efforts and possibly to the point where the country goes into recession.
Higher unemployment will negatively impact the housing market’s recovery, but any rate cuts from the Fed could mitigate that impact.
Still, the number one factor likely to slow or even reverse the housing market’s recovery is the lack of inventory. We have too few homes for sale, which could limit total sales volumes and price potential home buyers out of the market.
Even with recent declines, housing costs remain significantly higher than they were a couple years ago. While some factors—like a backlog of stale listings—will limit price growth, overall low inventory will make big drops in housing prices unlikely.
Top takeaways for real estate agents
If you haven’t already watched the BAM webinar with Byron Lazine and KCM President David Childers, now is the time to learn how to articulate the unique opportunity for buyers in today’s market.
And if you’re wondering how to help prospective sellers in your market, listen to Byron and Tom Toole brainstorm conversation starters that activate sellers by addressing their pain points.
Hoping that the market we don’t know yet will be better than the one we have now is not a strategy. Take this as a call to learn everything you can about where we are and where we’ve been, so you can clear the fog and help your clients make smart decisions.
Learn from those with an intimate understanding of the market. And pass it on.
