Friday, 27 September 2013 17:33

Home-Buying Competition Continues to Wane as Market Rebalances

Rate this item
(0 votes)

by Rachel MusikerSeptember 26, 2013

For the fifth month in a row, competition among buyers for homes declined in August, further assurance that we are shifting away from the seller’s market that dominated the first half of the year toward one that is more balanced. Still, tight inventory conditions mean that across Redfin’s 22 markets, most customers making offers at the end of the summer faced competing bids. In August, 60.5 percent of offers written by Redfin agents across the country faced bidding wars, a drop from 63.3 percent in July and from 63.5 percent in August 2012. This was the first year-over-year drop in competition seen since Redfin began collecting this data in 2011.

Other findings include:

  • Competition declined most dramatically in Baltimore, with a drop from 50% of Redfin offers facing competition in July to just 29.8% in August. All of Redfin agents’ winning offers were equal to or below the asking>
  • Nationally, the average difference between Redfin’s winning offers and asking prices fell below zero (to -0.3%). Only San Francisco and Seattle had offers higher on average than asking prices, with 7.2% and 0.2% respectively.
  • From July to August, all-cash offers grew in popularity as a winning strategy in San Francisco(climbing from 4.0% of offers in July to 11.5% in August), San Diego (3.2% to 15.8%), Washington D.C. (4.7% to 10.5%) and Seattle (3.2% to 12.5%), proving that even as competition has waned, the buyers who remain are more willing to do what it takes to win.
  • Pre-inspections, completing the home inspection before making an offer, were not used in any of Redfin’s competitive offers in August. They had been a popular competitive strategy in Seattle,Baltimore, and Washington D.C. in each of the several months prior.
  • Of Redfin’s nine most competitive markets tracked in this report, just two got more competitive. Bidding wars picked up in August in San Francisco and Orange County, with 4.2 and 3.6 percentage point increases, respectively.
  • San FranciscoLos Angeles and Boston were the only cities that experienced a more competitive August market this year than last year. In all the other metro areas covered, competition for homes declined year over year.

Rebalancing Market Causes Homebuyers to Reassess Plans

The competitive landscape in the housing market has changed drastically from this spring. Home prices jumped by double digit percentages from last summer, and mortgage rate fluctuations threw many homebuyers for a loop. According to Redfin’s recent Buyer Survey, 63 percent of buyers said that rising mortgage rates this summer impacted their ability to buy the home they want while 20 percent said that higher rates led them to slow the pace of their home search. Moreover, tight inventory conditions and buyer fatigue from cutthroat competition this spring has led some buyers to postpone their home-buying plans until more homes come on the market.
Redfin agents in San Francisco point to rising mortgage rates and further tightening inventory to explain the increased competition they faced last month. “Once mortgage rates started to pick up, some buyers put their searches on hold, but at the same time, the already scarce inventory in Silicon Valley fell even further last month,” said Redfin agent Nicolas Meyer. “The number of offers per home has declined, but the buyers who remain are still bidding up home prices well above asking.”

Reduced Competition Makes Home-buying Less Risky

In some markets, reduced competition has led buyers to use risky or highly competitive strategies less often. In Baltimore, the substantial drop in competition means that buyers have been able to make offers that include all the contingencies meant for their protection. “A handful of our home-buying clients have recently gotten offers accepted that were contingent on the sale of their own home,” said Taylor Connolly, Redfin’s Baltimore market manager. “A contingent offer wouldn’t have stood a chance just a few months ago.” Taylor also suggested that Baltimore’s easing market is likely due to a backlog of foreclosures that are still hitting the market in Maryland.

The aggressive strategy of having an completing an inspection before writing an offer, which had become popular in certain markets including Seattle and Washington, DC, became obsolete last month. Agents and buyers are likely doing away with this strategy first because it is the most costly for buyers up front, committing several hundred dollars to cover an inspection for a home that dozens of other buyers are also having inspected with plans to write an offer.

Lower Mortgage Rates Could Boost Competition this Autumn

Lower mortgage rates this month could spur a slight boost in bidding wars in October. Mortgage rates began to ease in mid-September in reaction to the Federal Reserve’s decision to keep its stimulus program unchanged. As a result, Redfin agents in some markets reported a swift reaction among buyers. According to Redfin Seattle agent KC Brants, “Sellers over the weekend were so bombarded with offers that they began adding offer review deadlines—a tactic that was the norm this spring and early summer but had begun to phase out.”

back to top