Many people have seen only a part of the recent housing market picture. Perhaps you heard about a neighbor getting 8 offers in 24 hours when selling a house, all with waived contingencies and over asking price. Perhaps you have heard the tale of woe from a friend who is trying to buy in your area but simply cannot get a bid in fast enough with financing all put together.
Whether you’ve heard success or failure stories, the current market exceeds even the typical seller’s market, with house prices going up much more than usual – there are many sales happening, but there are even more buyers who would like to buy. Let’s look at what makes a seller’s market get so hot like this, and how it might cool over in the coming year or two.
Inventory and Interest Rates: Two Accelerators of the Runaway Seller’s Market
Two things conspired in 2020 to start the cycle of a high seller’s market. First, interest rates were cut, driving many families who had considered moving anyway to want to get out of higher interest mortgages and purchase a nicer home with a lower rate. This brought many interested buyers to the market, not to mention the sea changes caused by the COVID-19 pandemic that prompted job-related and family-related moves.
Secondly, people who weren’t sure what the volatile market had in store and were nervously awaiting a reduction in cases of COVID chose not to list their homes. As a result, the imbalance between people who wanted to buy and people who wanted to sell meant that many sales in high-demand areas were coming in over asking, with property values growing at record rates in many metro areas.
Interest Rate Boosts Could Prompt More Sellers Into the Market
The first lever that could really start getting more people into the market is a rise in interest rates. Some buyers would leave the market without the incentive of the low interest rates, and some sellers who want to get their homes sold before the end of the high prices would jump into the market. The combination of these two factors could loosen inventory and make people more likely to avoid bidding wars and other multiple-offer situations that drive up costs.
More Options Could Cause Buyers to Place Less High Offers That Are Less Likely to Fall Through
Sellers might seem dismayed at first at the thought of lower prices, but they’d stand to gain some stability too. With a very hot seller’s market, many buyers are incentivized to make an offer very quickly, even if they aren’t exactly ‘sold’ on the home, if they can later back out due to what the inspection finds. It’s often in the best interest of the seller to have a few days to consider a few offers and for buyers to think through their purchase very carefully, since it can reduce long-term delays. You can also talk with a great real estate agent to get more insight about how to motivate thoughtful offers that are fairly stable.
A Calmer Seller’s Market Could Give Many Sellers and Buyers a Reprieve
In the end, interest rates may stay fairly low for quite a while; the Federal Reserve has no motivation to send a huge shock to the housing market. So instead of an instant reversal to a buyer’s market, the best-case-scenario is probably a more gentle seller’s market. Yes, there might still be healthy interest in a listing, but without bidding wars, no one ends up buying a home for more than they really can afford or want to pay just to have a place to live. Sellers also can feel more confident that they’ll find their own next home when they’re shopping, keeping inventory more free-flowing. This is at least one way that inventory could loosen and the seller’s market could ease.