WRITTEN BY: MAX FITZGERALD
September 2022

As we all know by now, in March 2022, the Federal Reserve began raising its target interest rate in response to persistently higher inflation.

For homebuyers, this meant the end to an era of historically low mortgage rates and with higher interest rates come higher monthly mortgage payments. This effectively makes homeownership more expensive for buyers using a mortgage, reducing the number of buyers, and easing demand pressure.

The National Association of Realtors reports that as of July 2022, there was a 3-month supply of existing single-family homes for sale, down from a start-of-the-year low of 1.8 months. A 6-month supply is generally considered a "balanced" market.

While a shift is underway, it's not exactly a buyer's market. These dynamics are playing out in the form of increased inventory and less upward pressure on prices. While things may be cooling down, the landscape of the "new normal" continues to emerge.

Signs of a Cooling Market

During the recent market peak, it was not uncommon to hear stories of bidding wars driving up offer prices well above the list price.

Today, 89% of agents reported that bidding wars are on the decline in their markets. Already, sellers are starting to back off of ever-higher prices.

In the third quarter of 2022, 90% of agents report that price reductions have become more common in their markets, compared to only 34% reporting the same in Q2. Looking forward, 30% of agents expect home prices in their market to remain flat over the next six months, while 46% expect falling prices.

Shift in Buyer Behavior

The hot seller's market of 2020 - 2021 was fueled by low interest rates, low inventory, and high demand, giving sellers considerable leverage at the negotiating table. With the market starting to balance, buyers are adjusting their behavior knowing they no longer need to bend over backwards to make competitive offers that are over the asking price, that waive contingencies, or that are all cash.

Facing less competition, buyers are slowly starting to bring back their contingencies, and can say "take it, or leave it" to sellers. It's ironic how this has been a complete 180-degree role reversal in a very short period of time.

Tug of War Between Buyers and Sellers

Many sellers have come to grips that the market has shifted, and have adjusted their disposition strategy accordingly. However, there are still a considerable amount of sellers who are still looking for the all cash, non-contingent offers, but that ship has sailed.

We are in a tug of war between a seller's market and a buyer's market.

It always takes time for the seller to understand that we are going back into traditional sales, open houses, showings, and negotiated prices and terms. Sellers who are overpricing their homes in this shifting market will have very little luck. Buyers have more options to choose from, and much more leverage.

Sellers Getting Back to the Basics

Sellers - remember when you had to actually get your house ready to list? You had to do the fix-up work, paint the bedrooms, landscape the front yard, and make your house as appealing as possible. Yes, the last 24 months have been a piece of cake. You knew that your house was going to sell over the list price regardless of its condition.

Well, those days are over and it's time to get back to the basics.

Buyers are less likely to accept deferred maintenance, and homes on the market need to be show ready. Even when a seller has accomplished these items, selling your home within a day with multiple offers is the exception, not the norm today. Making sure every showing counts, having patience, and accepting that it may take up to 30 days to sell your home is necessary in today's market.

Buyers - Take Advantage of the Leverage!

Buyers - if you are pre-approved and have been patiently waiting to pounce at the right opportunity, now is your chance! There are probably a handful of homes that you've had your eyes on in your neighborhood. Go out and see some open houses this weekend!

This market is such a great opportunity to not only find the right home, but to negotiate the price down IF that home has been sitting on the market and you're not competing with other interested buyers. Make an offer below the asking price and see if it sticks! This has not been the case since 2020, so take advantage of this time.

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