Or does a lack of inventory mean competition will remain strong?
Less than six months ago, bidding wars were a widespread inevitability plaguing prospective homebuyers in an overheated housing market. But now, with home prices declining around the country and mortgage rates recently climbing to their highest level in 21 years, will the days when home sellers had multiple bids to consider become a thing of the past?
Some, like Moody’s Analytics Deputy Chief Economist Cristian deRitis, seem to think so.
“The rapid rise in interest rates has sharply reduced the number of potential homebuyers,” deRitis told Money.com. “[Homebuyers] today can expect to face less competition than they would have last year or even six months ago.”
DeRitis said all factors point to a homebuyer’s market.
“That’s a great thing if you’re still on the house hunt, as it means fewer bidding wars and less feverish negotiations. You probably won’t need to bid way over asking price or waive vital contingencies — which allow you to back out due to home inspection findings, a low appraisal or your loan falling through — just to get noticed,” he said.
A recent article in Forbes by investment firm Q.ai supported this sentiment.
“Higher interest rates and overall uncertainty in the market make all of us nervous about the real estate market,” the article stated. “It’s difficult to determine what will happen next as we wait to see the results of these constant rate hikes. However, we know that bidding wars seem to be a thing of the past as housing prices are slowly softening.”
But others are not so sure. Lawrence Yun, chief economist at the National Association of Realtors, said that limited inventory will mean that demand will not be entirely crushed, even with mortgage rates as high as they are.
“Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory,” Yun said in a recent press release. “The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010, when inventory levels were four times higher than they are today.”
To be sure, bidding wars aren’t dominating like they once were, with almost every major housing market in the country posting a decline in competition in the past year, according to new Redfin data.
But some markets are still seeing stiff competition for homebuyers, with Philadelphia standing out as the only major market to see bidding wars increase in the past year.
According to Redfin, more than 60% of Philadelphia-area homes listed with its agents had multiple bids. Colorado Springs, Boston, San Francisco, and Providence also saw significant competition for home purchases despite the market slowdown.
But in Las Vegas, Phoenix, Tampa, bidding wars are becoming notably less common, Redfin data showed.
Redfin’s Economics Research Lead Chen Zhao said the housing market is going to get worse before it gets better, and that means demand is likely to decline in the near term.
“With inflation still rampant, the Federal Reserve will likely continue hiking interest rates,” she noted. “That means we may not see high mortgage rates — the primary killer of housing demand — decline until early to mid-2023.”