This is a question that many potential home buyers are asking right now. When will the housing market slow down? When will the bidding wars end and prices come back down to earth?
After an unprecedented year of home price gains, which somehow happened during a global pandemic, buyers are looking for a vengeance.
But is it finally here, or is it just another seasonal fake?
It’s Been Too Much of a Seller’s Market in 2021
- Average home selling price rose 17% year-over-year to record high $361,973
- Prices of newly listed homes have increased by 10% from the same time a year ago
- Half the homes had an approved offer within the first two weeks of being on the market
- 52% of homes sold above their list price, up from just 30% a year ago
First, the bad news, assuming you don’t own one yet. Home prices continue to fluctuate, with the average home selling price rising 17% year-over-year for the week ended August 15. redfin.
This pushed home prices to an all-time high of $361,973, and was a much clearer climb than what we’ve seen in previous years.
Part of this can be attributed to the COVID-induced home buying frenzy, while other underlying drivers have held steady for some time.
With too many buyers and not enough homes, supplies are tight. Home builders have yet to catch on and don’t look close to doing so.
Also, mortgage rates remain at/near record lows, creating even more demand.
When you throw in a need for more space because of a stay-at-home order, you end up with a perfect storm.
This makes it much more of a seller’s market in 2021 than it has been years ago. Ultimately, COVID aggravated the already dire situation.
Bidding wars are fading away, domestic sellers slashing prices?
Now there is “good news” with a big caveat for potential home buyers.
Both the bidding war and listing prices have been falling of late, which could signal the end of the overly heated housing market.
Redfin noted that only 60.1% of offers written by its own agents in July faced competition from other buyers.
This was down from a revised rate of 66.5% in June and the peak of the pandemic in April of 74.1%.
However, despite the July bid-war rate being the lowest since January, it is still higher than the 57.9% bid-war rate seen in July 2020.
So although it appears that things are moving in the right direction, they may actually just be seasonal.
Meanwhile, the average share of homes that cut prices exceeded 5% during the four-week period ended August 15, 2019, the highest level since the four-week period ended October 10, 2019.
Here’s the problem. This is all relative to an unbelievable period for home prices.
In other words, sure, profit is declining, but things like the sales-to-inventory ratio are still well above the year-ago level.
It really just tells us that the decline in home price is decreasing, not going away.
And to make matters worse, it can all be attributed to seasonal home price patterns.
Seasonal patterns could make it feel like the end of the boom again
If you have been watching your local housing market, you can be hopeful that we are returning to normalcy. But don’t get your hopes up.
It is normal for the housing market to be cold in the fall and winter. As children return from school, it is normal for homes to sit in the market for longer periods.
Every year, as we near the end of summer and school is back in session, the housing market slows down.
This is a distinctive seasonal pattern that repeats itself each year following the traditionally strong spring home buying season.
In short, with April and May being the hottest months, then home buying activity is expected to decline.
This is usually accompanied by lower asking (and selling) prices, price cuts, fewer bidding wars, and longer time on the market.
While we are looking at some of them, you still need to put this in perspective. Home prices and bidding wars are only low relative to the incredible numbers that have been recorded in the past year.
Imagine Tesla stock trading at an all-time high of just $700 versus $900. Sure, it’s lower than before, but still up something like 1,500% over the past five years.
With regard to home prices, they are still achieving new highs. The only thing that is trending down is the momentum of appreciation.
And here’s the worst news – expect the housing market to warm up once again in the spring of 2022.
Read more: When will the housing market crash?