The frequency of bidding wars on homes has dropped to the lowest level this year — the latest sign that the housing market may be cooling and reverting back to its usual seasonal patterns.
A new report from Redfin
found that 58.8% of the offers on homes written by the company’s real-estate agents faced competition in August. That’s down from 62.1% the month prior and a peak of 74.3% reached back in April. Redfin defines a bidding war as any situation where there are at least two competing bids on a home.
It represents the lowest level of competition for homes since December, when the bidding war rate was only 53.7%. Notably, August 2021’s figure is slightly below the level posted a year earlier, a sign that the market may be reverting to its standard seasonality.
The peak home-buying season typically occurs in the spring and summer, as families seek to buy and move into a home before the start of the school year. But in 2020, that typical seasonal pattern was disrupted by the COVID-19 pandemic. Real-estate activity drew to a halt in the typically busy months of April and May amid stay-at-home orders to tamp down transmission of the coronavirus that causes COVID-19.
Soon thereafter, the nation’s housing market sprung back to life — and then some. The pandemic spurred many families to consider moving to larger homes, as many Americans were suddenly able to work remotely.
At the same time, millennials were entering their prime home-buying years en masse, and the pandemic made homeownership a bigger priority for those who weren’t adversely affected by the labor market’s downturn. On top of all that, record-low mortgage rates created even more demand, as people considering buying a home suddenly felt the pressure to lock in affordable financing before the opportunity disappeared.
“‘Sellers are still pricing their homes very high, but a lot of buyers have had enough and are no longer willing to pay the huge premiums they were six months ago.’”
This sudden surge in demand met with an extremely limited supply of homes for sale. Years of underbuilding has meant that the U.S. is facing a housing shortage — plus, the pandemic prompted many sellers to hold off on listing their homes for sale. As a result, the rate of bidding wars quickly surged last summer and grew up until this spring.
All of this competition has driven home prices to record highs in many parts of the country, as double-digit percentage price appreciation became the norm. But now the number of bidding wars are falling, according to Redfin’s analysis. And those high home prices could be a major factor as to why.
“Sellers are still pricing their homes very high, but a lot of buyers have had enough and are no longer willing to pay the huge premiums they were six months ago. Instead of 25 to 30 offers on turnkey homes, we’re now seeing five to seven,” Nicole Dege, a Redfin real estate agent in Orlando, Fla., said in the report. In Orlando, the bidding-war rate dropped from 78.9% in July to 57.5% in August.
Redfin’s analysis noted that only 50% of homes sold above their list prices during the four weeks ending Sept. 5, which is down from a peak of 55% in August. And the speed with which sellers are accepting offers has also slowed.
Still, all real-estate is local — and many markets are showing no signs of cooling. Raleigh, N.C., had the most competitive housing market in the country, according to Redfin’s report, with 86.7% of homes seeing bidding wars in August, up from 71.3% the month before.
The next most competitive market was San Francisco-San Jose, Calif., followed by Tucson, Ariz., and Cincinnati. Of the top 10 most competitive markets, only two saw the bidding-war rate decline between July and August: Charlotte, N.C., and San Diego.