How long will the seller’s market persist?￼
Selling a house? Good for you. It’s a seller’s market. You will probably sell your home quickly and get your asking price or even more. But will the seller’s market last? If so, for how long?
“Since the industry [residential real estate] reopened in mid-2020, it has morphed into the mother of all seller’s markets,” according to Fortune magazine. In May of 2020, the median home price in the United States was just under $278,000. By March of 2022, the price soared to $405,000, a 68% increase Also, the turnover time is quicker. Fortune notes that houses are selling approximately 10 days faster than last year.
Other benefits for sellers, besides higher sales prices and faster turnover, is they can be picky with competing offers. Those buyers winning the competition are coming to the close with an all cash offer.
Based on the market, it’s no surprise that Forbes entitled an article “Home Sellers Have Great Expectations in a Hot Housing Market.” The article notes that prospective sellers surveyed in 2022 list “wanting to profit off the current market” as their top reason for selling (tied with their current home not meeting their needs). The survey also found that 42% of prospective sellers plan on asking for more than their home is worth (compared with 29% in 2021).
Other stats from Forbes show that sellers are in the driver’s seat: “The majority (80%) of recent sellers sold at or above their asking price. Other top benefits of the competitive market included: buyers forgoing repair concessions (28%), offers within a week (27%) and waived contingencies such as inspections (25%).”
On the flip side, Fortune notes that homebuyers have never been more pessimistic about the real estate market because demands are at record highs, but there’s a record-low inventory of new homes.
Up, up, and away?
Based on the imbalance of supply and demand as, experts predict home prices will continue rising at a significant rate. Zillow, an online real estate marketplace, surveyed experts, and anticipate median prices to rise 9% in 2022 and 27% over the next five years. Some of the experts said home prices could increase by 46.5% by the end of 2026.
Despite the predictions and the current seller’s market, there are reasons to think the market may be shifting. A recent New York Times article noted a decline in online home searches and fewer people attending open houses. The Times also cites a survey of builders that found they “… were still seeing strong demand, [but] cancellations had inched up, though [were] still well below historically low levels.”
The Times added, “By any standard that prevailed before 2020, this would be a hot real estate market. … Still, after two years of torrid demand, agents had become accustomed to fielding multiple offers for each listing and setting price records each weekend.”
Why the relative decline of the market?
The primary reason experts point to is rising mortgage rates. They have risen from slightly over 3% at the beginning of 2022 to 5% by the spring. “Now early data and interviews across the industry suggest that many buyers have finally been exhausted by declining affordability and cutthroat competition, causing the gravity-defying pandemic housing market to start easing up,” according to the New York Times.
With the Federal Reserve Board poised to continue raising rates, expect mortgage rates to rise as well. Higher interest rates make affordability a greater issue that will price some perspective homeowners out of the market.
In addition to affordability, the great migration to the suburbs, caused by the ripple effects of the pandemic, is slowing. “That frenzy, brought on by pandemic migrations and the growing centrality of the home as a space where people both live and work, is now subsiding,” per the New York Times.
Forbes adds, “The Covid housing market has largely favored sellers, and many who recently sold were able to take advantage of bidding wars, fast closings, waived contingencies, inspections, appraisals and more.”
Will home sellers have to adjust their expectation of cashing out for big profits?
They may have little choice, as such a scenario is already playing out. “Price drops are still rare, but the fact that they are becoming more frequent is one clear sign that the housing market is cooling,” says Daryl Fairweather in a release from Redfin, a real estate brokerage site.
The Redfin release added a softening in demand, particularly in expensive coastal markets. The New York Times article cites an anecdote from a Portland, Oregon, real estate agent about a house getting just one bid that was not above asking price, which had been commonplace during the pandemic housing rush. The agent added that the seller accepted the price.
With the number of home buyers starting to lessen, it seems like housing prices will not continue their meteoric rise. Yet, other factors impact the market. Due to the undersupplied housing market, the stock of available homes is insufficient. So, it seems prospective home sellers still have the upper hand.
The seller’s market should continue at least through 2022. However, the market has slowed. Fairweather says, “What I’m expecting is for homes just to start getting fewer offers, and sellers will have to give up some of their power. It will eventually filter down to prices.”
So, homeowners will need to temper their expectations and perhaps adjust their asking price. The rapid increase in median prices has passed, and selling may become more challenging.