It seems that rising interest rates and record-high home prices are finally starting to affect the market as fewer homes received competing bids in March than they did in February.
According to Redfin [1], an online real estate brokerage, 65 percent of homes received a competing bid during the selling process in March 2022, down 1.7 percentage points from February. This is the first decrease since September 2021 and is a key indicator that demand is beginning to cool as the combination of mortgage rates and home prices are pushing people out of the market.
Yet bidding wars are still more common on a year-over-year basis. A year ago, 62.2% of offers encountered a competing bid. On an unadjusted basis, March’s bidding-war rate was 69.3%, down from 71.9% in February.
Most homebuyers are still encountering bidding wars, but competition is beginning to cool because surging mortgage rates and home prices are prompting some Americans to back out or put their buying plans on hold,” said Daryl Fairweather, [2] Redfin’s Chief Economist. “We expect bidding wars to ease further in the coming months as rising mortgage rates price more buyers out of the market. That should provide some relief for people who can still afford to buy, as they’ll likely face fewer competing offers and may no longer need to offer drastically over the asking price in order to win. Unfortunately, the slowdown in competition won’t help those who have already been priced out of homeownership and are now grappling with soaring rental costs.”
According to Redfin, the 30-year fixed mortgage hit 5% in early April and now sits at 5.11%, the highest it has been since 2010. This included the quarter point increase of the base interest rate by the Federal Reserve in March.
Meanwhile, home prices are up 17% year-over-year to a record $392,750. This has pushed the typical homebuyer’s monthly payment up more than 30%.
On a metropolitan level, cities on the coasts saw the most competition per property.
The top five cities that saw the most bidding wars were: San Jose, California (79.8% of properties saw more than one bid); Boston, Massachusetts (79.0%), Providence, Rhode Island (78.3%); Worchester, Massachusetts (78.2%), San Diego, California (78.1%).
So what type of property are people bidding on the most? Nearly three-quarters (72.4%) of Redfin offers for townhouses faced competition in March—a higher share than any other property type. Next came single-family homes, with a bidding-war rate of 70.2%, followed by multi-family properties at 68.1% and condos/co-ops at 62.6%.
“March was the first month in two years that I had a weekend with zero house tours. People are getting priced out,” said Maria Giron [3], a Redfin real estate agent in the Bay Area. “Some buyers are in shock and dropping out altogether. Others are looking at more affordable options like smaller homes or neighborhoods that are farther out. The buyers I’m working with who are most sensitive to the rise in mortgage rates are first-time buyers looking for homes in the $500,000 to $700,000 range.”
“Homes are still getting multiple offers, especially in desirable areas, but those in other areas are now seeing fewer offers than they were a couple of months ago.”
Click here [4] to view the report in its entirety, including data for the top 36 metropolitan areas.