The frequency of bidding wars on homes has dropped to its lowest level this year, the latest sign that the housing market may cool and return to its usual seasonal patterns.
A new Redfin RDFN report,
found that 58.8% of home deals made by the company’s real estate agents faced competition in August. This was down from 62.1% the previous month and a peak of 74.3% came in April. Redfin defines a bidding war as any situation in which there are at least two competing bids on a home.
It represents the lowest level of competition since December, when the bidding war rate was only 53.7%. It should be noted that the August 2021 figure is slightly below the level published a year earlier, a sign that the market could return to its standard seasonality.
The peak time to buy a home usually occurs in the spring and summer, as families seek to buy and move into a home before the school year begins. But in 2020, this typical seasonal pattern was disrupted by the COVID-19 pandemic. Real estate activity stopped in the busy months typically of April and May, amid home orders to curb the transmission of the coronavirus caused by COVID-19.
Shortly afterwards, the nation’s real estate market came back to life, and then to 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 beginning their first years of home buying a lot, and the pandemic made property a higher priority for those who were not negatively affected by the recession in the labor market. In addition, record low mortgage rates generated even more demand, as people considering buying a home suddenly felt the pressure to get affordable financing before the opportunity disappeared.
““Sellers continue to set a very high price for their home, but many buyers have had enough and are no longer willing to pay the huge premiums they were six months ago.””
This sudden rise in demand was met with an extremely limited supply of homes for sale. Years of little construction has meant the United States is facing a housing shortage; in addition, the pandemic caused many sellers to stop on the list of their homes for sale. As a result, the rate of bidding wars rose rapidly last summer and grew until this spring.
All this competition has driven house prices to record highs in many parts of the country, as the appreciation of double-digit percentage prices became the norm. But now the number of bidding wars is declining, according to Redfin’s analysis. And these high house prices could be an important factor as to why.
“Sellers continue to set a very high price for their home, but many buyers have had enough and are no longer willing to pay the huge premiums they were six months ago. Instead of 25 to 30 turnkey home deals, we now see five to seven, “Nicole Dege, a Redfin real estate agent in Orlando, Florida, said in the report. In Orlando, the war rate of Bidding fell from 78.9% in July to 57.5% in August.
Redfin’s analysis noted that only 50% of homes were sold above list prices during the four weeks ending Sept. 5, which fell from a high of 55% in August. And the speed with which sellers accept offers has also slowed down.
However, all real estate is local and many markets show no signs of cooling. Raleigh, North Carolina, had the most competitive housing market in the country, according to the Redfin report, with 86.7% of households having bidding wars in August, up from 71.3% of the previous month.
The next most competitive market was San Francisco-San Jose, California, followed by Tucson, Arizona and Cincinnati. Of the top ten most competitive markets, only two saw the bidding war rate fall between July and August: Charlotte, NC and San Diego.