As housing cools, some buyers get a second chance to grab their first choice
Don't give up on getting that house you really wanted
- Housing is slowly becoming more of a "buyer's market."
- Sellers' asking prices are steadily decreasing despite remaining traditionally higher than usual.
- Don't expect a big housing crash similar to 2008, experts say.
After nearly three months and looking at 24 houses, Kevin Lowrie and Matthew Hambleton thought they had found their forever home.
They discovered a quaint two-bedroom, 1½-bathroom house in suburban Philadelphia. The couple, one a health care worker and the other a retail banker, made what they considered a high offer, only to be outbid by an all-cash deal $70,000 higher than their offer.
"Bummed," is what they said simultaneously to describe their reaction.
A month later, their real estate agent called with a second chance to bid on the house. The previous deal fell through. Did they still want it? They did.
The couple closed the deal July 15, and on Saturday, they moved into their new home.
"We're going to hang stuff up on the walls; we're going to paint a wall," Hambleton said. "We have a backyard!"
Lowrie added, "We can finally breathe."
Their second chance to get their first choice for a home comes as homebuyers are backing out of purchases at the highest rate since the start of the COVID-19 pandemic, according to real estate broker Redfin.
But is it a slight correction in pricing or a recession-prompted trend? It depends, experts say.
Housing market downfall
About 60,000 home-purchase agreements fell through in June, Redfin said, totaling about 14.9% of homes under contract that month. That's the highest percentage on record, excluding March and April 2020, when the housing market came to a standstill because of the pandemic.
"I would say if you are a homebuyer, somebody, or a young person looking to buy a home, you need a bit of a reset," said Fed Reserve Chair Jerome Powell last month. "We need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again."
A homebuyer's market?
Jessica Lautz, the National Association of Realtor's vice president of demographics and behavioral insights, said the market is not balanced – yet – but some homebuyers now have a better chance of getting their preferred choice than a few months ago.
"Some higher-income homebuyers may have a second bite at the buying apple due to less competition in the marketplace, but they would only have a better chance because other lower-income home buyers were pushed to the sidelines," Lautz said.
She said local inventory, affordability and the job market will play key factors in who benefits from the trend.
For example, in a NAR study released this year, the cities of Deltona, Florida; Des Moines, Iowa; and the Augusta, Georgia-Richmond County, South Carolina, metro area are the top 3 U.S. locations where the most available and affordable homes are for sale relative to the household population with incomes of $75,000 to $100,000.
Lautz also cited a June NAR realtors confidence index report that said first-time homebuyers represented 30% of all buyers nationwide, up from 27% in May, and another NAR report stating existing-home sales dropped for the fifth straight month in June.
Ryan McLaughlin, CEO of the Northern Virginia Association of Realtors, calls what he sees happening as the start of a "balanced market" reminiscent of pre-pandemic times.
"It's amazing because homes were selling 10% to 20% more about three months ago and that's probably frustrating for a seller today who saw their neighbor get as much as $100,000 over their asking price," McLaughlin said.
Is now a good time to sell?
While the seller's market shows regional signs of cooling, that doesn't mean housing prices are declining in every market. That June NAR report also said the median existing-home price for all types of housing was $416,000, up 13.4% from June 2021, when the average home price was $366,900.
"Although the price to buy a house is higher, we're seeing slightly less competition in the marketplace, and that could bode well for homebuyers," Lautz said.
For sellers, Ben Jasek, a real estate agent in Nashville, Tennessee, one of the hottest markets in the country, said patience is key.
"Homes are still going under contract, but versus offers within a day of being on market it may take a week or two," Jasek said. "Also, find ways to make your home stand out against the competition."
How will mortgage rates affect home prices?
Homebuyers will have to contend with rising rates: A 30-year mortgage has had an average interest rate above 5% since mid-April, and more rate increases from the Federal Reserve are likely. Inflation climbed 9.1% during the year that ended in June, the largest increase in 40 years, according to the Bureau of Labor Statistics.
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Kristina O'Donnell, a real estate agent with Realty ONE Group in Collegeville, Pennsylvania, who helped Lowrie and Pemberton get their home, said the interest rate increases, coupled with rising home prices, prompted buyers to back out of deals.
She said that on July 15, she helped a couple close on a townhome for which a month earlier they were passed over, as the original buyers had "financial problems." The couple plan to move in by Aug. 1.
She said some sellers' asking prices are now falling almost daily.
"Instead of sellers having 30 appointments over a weekend, maybe it's down to about a handful for some homes," O'Donnell said. "It's still competitive, but there are fewer offers for buyers to compete against."
Higher rates may still not drive away the most determined homebuyers, said Jeff Taylor, a managing partner at Digital Risk LLC, a mortgage processor, and a board member of the nonprofit Mortgage Bankers Association.
"For the last two years, we all got into this mindset to spend almost every discretional dollar into our homes," Taylor said. "It's slowly changing as we're getting out more, but the housing market is strong now for buyers and I expect it to be that way for the next 12 to 24 months."
But it's not that easy. In May, Jasek, the Nashville real estate agent, said he lost a short-term rental/vacation cabin in the Smoky Mountains to a slightly higher bid.
But Jasek said that a few weeks later, the buyer backed out because of loan issues.
He closed on the property in Juuly.
"We were a bit shocked by all of this," Jasek said.
Jasek called the past two years "an emotional roller coaster" for real estate agents and buyers because of how fast-paced the housing market has become.
"Actually, it's a bit of a relief for them to have a better chance to get their offers accepted," Jasek said. "We'd be getting kicked to the curb a couple of months ago."
Will home prices drop?
Buyers shouldn't wait too long expecting another big housing crash similar to 2008 that led up to the Great Recession, Jasek said.
Why? Because it's unlikely to happen.
Using stats from Freddie Mac, Jasek calculated the 30-year fixed-rate mortgage from the first week of January (3.22%) and compared it with today’s current rate (5.54%) on a home priced at $400,000. That would roughly be a payment increase of about $546.95 a month.
"The housing market is still strong, it’s just not as feverish as it was a few months ago," Jasek said. "The market is not plummeting."
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Can you negotiate in this market?
Duggan MacDonald, of New York City, advises buyers to stand firm on their bid. Last year, he and his wife, who both work in investment banking, wanted to buy a second home in West Hampton, New York,
A bidding war ensued on the 1,900-square-foot home and the price went up by "few hundred thousand dollars," MacDonald said, knocking them out of the running.
That offer fell through months later and, after using startup real estate agency Yoreevo to help broker the deal, MacDonald knocked $100,000 off his initial offer.
"The situation worked out for us in a very competitive market at the time and that advice holds true maybe even more so today," said MacDonald, who has since become a father. "It’s a good feeling to not have to chase up to eye-watering levels."
An emotional roller coaster for buyers and sellers
Lowrie and Hambleton feel the same way. Lowrie said real estate agent O'Donnell encouraged them to remain steadfast after their initial bid was rejected.
Shortly after they signed their settlement papers and got the keys, Lowrie and Hambleton bought a gas grill and cooked hamburgers and hot dogs in the backyard.
They also brought Diamond, the oldest of their three cats, so he could scamper around the backyard and "eat some grass" for his first – and final time.
The feline was later put down after a long battle with kidney disease. The couple plan to put his ashes in a stone in the yard.
The couple said they are happy to have a new home with new appliances, including a washer and dryer, which means no more trips to the laundromat on Sundays.
O'Donnell urges prospective homebuyers to have hope.
"I always tell my clients 'Don’t mentally move in until the ink is dry,''" O'Donnell said. "You may not get the home of your dreams the first time around, but you never know these days if there's a second chance."
Follow Terry Collins on Twitter at @terryscollins