A realtor, at right, shows prospective buyers a property in Newport Beach, California.
Jamie Rector | Bloomberg | Getty Images
Competition in the fall housing market is falling. Just 10% of offers written by Redfin agents for their clients in October faced a bidding war, down from 39% a year ago, according to the Seattle-based real estate brokerage.
Mortgage rates are still significantly lower than they were a year ago but moved slightly higher during the month, making homes less affordable overall.
Home price gains had also been falling all year, but now those gains are re-accelerating. Those two factors translate into both higher down payments and higher monthly payments. Buyers may be starting to feel that strain on their wallets.
The culprit could also be the supply situation at different price points. Supply usually increases in the fall, but it is lower overall than a year ago. The bulk of the demand in today’s market is at the lower end, where buyers often don’t have the financial ability to get into a bidding war. The supply of homes for sale priced below $200,000 fell 15% annually in October, according to realtor.com, and sales of those homes have been falling dramatically for several months.
On the higher end, the supply situation is not as tight and there is less demand. The supply of homes priced between $200,000 and $750,000 fell just 4% annually in October. Higher-end buyers have more to choose from and less reason to get involved in a bidding war and overpay.
“Although the number of homes for sale is dwindling and prices are rising, homebuyers don’t yet feel the pressure to engage in bidding wars,” said Daryl Fairweather, Redfin’s chief economist. “There are still homes on the market where sellers are willing to accept offers below list price, so buyers figure why get involved in a price escalation when there are still deals out there to be found. But as the number of homes for sale continues to decline, buyers will become more competitive.”
All real estate is, of course, local: Miami, Atlanta, Las Vegas and Chicago are seeing less than 10% of their properties go into bidding wars, while other markets are much hotter. About 35% of offers in San Francisco faced competition, according to Redfin, although that is still down from 58% in October 2018. Los Angeles, Philadelphia, Phoenix and Boston are also seeing more than 10% of their for-sale properties in bidding wars.
If mortgage rates continue to hover in this recent low range, and if supply doesn’t improve significantly, it is likely competition will heat up again .
All of the pieces are in place for bidding wars to become more common and for the housing market to shift back toward the seller’s favor next year,” said Fairweather. “Now may be the last chance in the foreseeable future for buyers to win a home without facing a bidding war.”