×

Signs the housing market is turning more buyer-friendly

By Alexis Christoforous, ABC News Jul 13, 2022 | 11:44 AM


Courtesy Jarvis Claiborne

(NEW YORK) — When Jarvis Claiborne and his wife Renada were pre-approved for a mortgage in February, they were excited to start shopping for their first home in Houston, Texas. But that excitement quickly turned to shock and frustration as they realized they couldn’t compete with all-cash offers that were often tens of thousands of dollars above a home’s listing price.

“We really just weren’t willing to pay the prices that people were asking and that people were paying,” Jarvis Claiborne told ABC News. “Most of the houses, we didn’t even have a chance to bid on. As soon as they were coming on the market, they would just get snatched up.”

Jarvis Claiborne, who works in the oil and gas industry and Renada, a private investigator, decided to walk away from their home search in June, as mortgage rates climbed above 6%.

After two years of housing-hunting and getting outbid, often by all-cash offers, Tinesha Feiton, a single mom from Brooklyn, New York, is in contract to buy a three bedroom home in West Orange, New Jersey.

“It feels a little surreal,” Feiton told ABC News about finally having a seller accept her offer. An information technology consultant, Feiton is paying $46,000 above the asking price of $479,000.

“I still feel kind of worried because I’m just thinking to myself, well, is the house going to appraise for that value. You know, I don’t want my first home to actually be a lemon,” she said.

Feiton said it was important that she be settled in a home in time for her 5-year-old son Mason to start kindergarten in his new school this fall.

Record home prices and higher mortgage rates made May the most expensive month to buy a home since 2006, according to the National Association of Realtors’ Housing-Affordability Index. The index incorporates median existing-home prices, median family incomes and average mortgage rates. The median price of a home in the U.S. reached a record $407,600 in May, according to the NAR, as mortgage rates more than doubled since January to the highest level in 13 years.

That pushed the typical monthly mortgage payment to $1,842 in May, up from $1,297 in January, according to the NAR, assuming a 30-year fixed-rate mortgage and a 20% down payment. Despite the rising cost to finance a home, there are fresh signs that the housing market is slowly becoming more buyer-friendly.

Sales of previously owned homes fell in May for the fourth straight month as more buyers give up, pressuring sellers to cut asking prices. More than one in five homeowners dropped their asking price in May, according to the real estate brokerage Redfin, and for the first time in three years, Realtor.com said the number of homes for sale is on the rise, up 21% in June compared to a year ago.

The real estate firm’s Chief Economist, Danielle Hale, told ABC News there are two reasons for the rise in inventory.

“One, we’ve got more homeowners deciding that now is the time to sell their home, and the other reason is that buyers are getting a little bit choosier as the cost of housing goes up,” she said.

According to Redfin, bidding wars are slowing down and searches for “homes for sale” on Google are down nearly 14% from a year ago.

“A couple of months ago, it wasn’t unusual for a home to get 10 to 20 offers,” said Sarah Drennan, executive vice president at Terrie O’Connor Realtors in Northern New Jersey. “Now, they’re still getting a number of offers, but it’s less than 10.”

Mortgage applications sank 16% in June and are now less than half what they were a year ago, according to the Mortgage Bankers Association.

Drennan said a growing number of sellers now recognize new limits to their pricing power, as the days of sellers asking — and getting — their “make me move price” begin to fade.

“We’re not seeing a price reduction, we’re seeing just a deceleration of price increases,” said Drennan. “So prices are still increasing, just not at double digit rates like we were seeing just a few months ago.”

While home prices are still trending higher nationally, Realtor.com found that prices have begun falling in many smaller Rust Belt cities. In Toledo, Ohio, home prices plunged 18.7% in May. They sank 15.4% in Detroit and fell 13.4% in Pittsburgh, Pennsylvania.

Demand for second-homes is also showing signs of softening. Patty Magie has been selling homes in Pennsylvania’s lake region of the Pocono Mountains for 30 years. She told ABC News she never saw demand for housing like she did at the height of the pandemic.

“People were buying site unseen, waiving appraisals and home inspections,” she said.

Eager for more space to work and school remotely, Magie remembers giving buyers home tours via FaceTime as they chased a small number of available homes. That scenario is changing.

“The current inventory has doubled from what it was in March and April; however, it is still about a third of what it was three to four months ago. There have been more price reductions and fewer bidding wars,” she added.

Potential buyers who have given up their search in favor of renting aren’t finding much, if any, relief. In fact, in some markets, rental prices are outstripping the monthly cost of financing a home, according to Miller Samuel, Inc. The real estate appraiser reported the average rental price in Manhattan cracked a record $4,000 per month in June.

“It’s expensive and getting more expensive in the city,” Jonathan Miller, CEO of Miller Samuel, Inc., told ABC News. “It’s interesting because office towers are two-thirds empty in the city, but yet you’re still seeing record leasing activity for the residential rental market.”

Still, experts say for some buyers, timing the housing market for that “perfect price” could backfire.

“If you have more flexibility in your timeline, you may be able to wait it out and negotiate with sellers,” said Hale, “but keep in mind that mortgage rates are also still climbing so you may end up with a higher mortgage rate if it takes you longer to find a home.”

Copyright © 2022, ABC Audio. All rights reserved.