There are signs that competition among buyers in the red hot housing industry is easing, though the market still remains much more competitive than in recent years.
A recent report from digital real estate brokerage Redfin has shed light on the reduced demand for mortgage application purchases in May. In other words, there were slightly less people applying for mortgages that month.
Freddie Mac Chief Economist told Redfin that the main reason for this was affordability constraints due to high home prices. “[But] with inventory tight, the slowdown in demand has yet to impact prices, meaning the summer will likely remain a strong seller’s market,” he added.
Redfin’s report also noted that 70% of all offers on homes in the U.S. last month faced competition, with multiple bidders. However, that is down from 74% in April, at least.
The findings suggest that the housing market might just be starting to normalize, Redfin said. It noted that home buying competition has historically always tapered off in the early summer following the spring season, which is traditionally the busiest time for buyers.
“The housing market was going 100 miles per hour and now it’s down to 80,” said Redfin Chief Economist Daryl Fairweather.
She said she thinks that competition for homes has already hit its peak and that it will now continue to level off, albeit slowly. One reason for that is because a lot of buyers have either been priced out or burned out due to the intense competition. So now, those buyers are just waiting it out on the sidelines until more normal conditions return.
“Americans are spending more of their money on things like travel and dining out now that pandemic restrictions are being lifted,” Fairweather said.
Redfin’s report analyzed 50 metro areas where its agents operate, and found that Spokane, Wash., was the most competitive market with 86.7% of all offers facing competition. Raleigh, N.C., saw 84.5% of bids face bidding wars, and Tucson, Ariz., was the third most competitive market with 81.8% of offers competing against multiple bids.
The most encouraging sign of a return to normality was seen in San Diego, where the bidding war level fell to 74.6% in May, down from 86.2% in April.
Redfin real estate agent John Copeland said that he’s noticed his clients these days are making far fewer offers to win bidding wars than before. He attributed that to a combination of the competition dying down and buyers getting smarter.
“A few months ago buyers were bidding on three to five homes before winning,” Copeland said. “Now, it’s more like one to two. Part of that is buyers grasping the reality of the market. They’ve become more educated about what they need to do to win, so they no longer need to make as many offers.”