LOS ANGELES — The housing market’s downturn from its high-flying days earlier this year is deepening, with home sales falling for the sixth straight month in July.
Soaring mortgage rates, rising inflation and prices remaining near all-time highs are making homes less affordable. Sales fell 20.2% from July last year, hitting the slowest pace since May 2020 just before the pandemic began.
But the slowdown has started to tip the home-buying equation, albeit slightly, in favor of home seekers who can afford to stay in the market and away from sellers who were previously able to sell their homes at prices , which perhaps they had never dreamed of achieving.
Homes still sell lightning fast, on average, and many continue to solicit multiple bids. But many sellers have had to become more flexible with their asking price and are finding they can no longer require potential buyers to forgo important safety precautions like a home inspection before closing the deal.
The shift doesn’t mean it’s now a buyer’s market – it will take a sharp increase in the number of homes on the market before that happens. Still, it’s a notable turnaround after a housing shortage, low mortgage rates and rising home prices have skewed the housing market heavily in favor of sellers in recent years.
“We know that when houses aren’t competitive, it takes longer to sell, sellers need to price more carefully and adjust,” said Danielle Hale, chief economist at Realtor.com. “So it’s moving in a buyer-friendly direction, but I’m not sure it’s there yet.”
New data paints a somewhat mixed picture in the housing market, with sales continuing to fall while tight inventory of properties for sale are pushing prices higher.
The National Association of Realtors said Thursday that existing home sales for the last month from June fell 5.9% to a seasonally adjusted annualized rate of 4.81 million. Barring the slowdown in the pandemic, July sales were the slowest since November 2015, NAR said. The last six-month losing streak happened between August 2013 and January 2014.
Despite the weaker market, many sellers are still entertaining multiple offers. A typical home received 2.8 offers last month, down from 4.5 offers a year ago, NAR said.
Nicholas Brooks and Nathan Giddings put their four-bedroom, 2.5-bathroom home in Flower Mound, Texas, about 20 miles northwest of Dallas, on the market for $575,000 in early June and received multiple offers. They ended up accepting a bid of $645,000, but it fell apart soon after. The couple, who now live in Portland, Maine, relisted the home a few weeks later but eventually accepted an offer of $615,000.
“We started out super optimistic, we got a lot of offers after asking, and a month later it was clearly a few offers and a lot less,” said Brooks, a systems analyst. “We definitely thought if we left it in the market, the offers would get lower and lower.”
Even if the housing market is losing momentum, real estate prices have continued to rise sharply. The nationwide average home price rose 10.8% year-on-year in July to $403,800. But at the start of the year, prices were up around 20% annually.
Before the pandemic, the average home price rose about 5% a year, said Lawrence Yun, NAR’s chief economist.
“So it’s still ramping up pretty sharply, even though it’s easing off from an overheated pace,” he said.
Earlier in the year, when the real estate market was still scorching hot, competition led to bidding wars that often resulted in homes selling within days of the sale and for well above their list price. However, as the market has cooled, the difference between the price homes are listed for and what they end up fetching has narrowed nationwide.
In January, the median selling price of U.S. homes was 14.4% below the median list price, but by May the gap had jumped to 19.5%, according to Realtor.com analysis. Even in a red-hot market, homes typically sell below asking price nationally.
The data suggests that some metro areas, where homes sold above asking price on average, have completely reversed and are no longer seller’s markets as buyers regained more leverage to negotiate a cheaper price.
For example, in the Memphis metro area, the median home selling price in January was 11.1% above the median list price. That changed in May, when the median selling price was 11.4% below the median list price, according to Realtor.com.
The trend is not limited to a specific region. Less favorable locations for sellers include metro areas around Honolulu, Miami, Detroit, Milwaukee and Little Rock, Arkansas.
Another sign that the market has developed more favorably for buyers: an increase in the proportion of real estate offers whose price has been reduced. In January, before mortgage rates began their sharp rise, only 6.4% of US homes for sale had their asking price reduced, according to Realtor.com. This rose steadily throughout the year, reaching 19.1% in July.
“Sellers need to lower their price to more realistic terms or a little below the price they want,” said Jessie Rittenhouse, an agent at Century 21 in the Dallas-Fort Worth area.
Additionally, sellers sometimes offer to pay buyers’ closing costs or give them thousands of dollars to offset the impact of higher mortgage rates, Rittenhouse said.
Nevertheless, competition for the cheapest apartments remains fierce, even if demand has cooled overall.
An analysis of home sales by Zillow shows that sellers with homes priced in the bottom third of the market are less likely to lower their asking price than those selling homes in the middle and high-end markets.
That’s true in the priciest markets like Los Angeles, New York and Seattle, as well as more affordable markets like Atlanta, Kansas City and Tampa, the real estate data company found.
For first-time buyers and others looking at properties at the lower end of the price spectrum, this means their prospects of owning a home aren’t necessarily improving.
“Affordability has fallen to its lowest level in 30 years,” said NAR’s Yun. “That’s why home sales are going down.”