The housing market might be — finally — starting to cool off. As mortgage rates continue to climb above 5%, there’s evidence that the fierce competition and sky-high prices that have defined the pandemic-era housing market are finally starting to wane.
In some cities, at least.
New data released Monday by real estate brokerage Redfin showed that the rate of competition — which it calculates as the portion of home offers written by its agents that faced at least one competing bid — dropped to 65% in March, down from 67% in February. That’s the first time this measure of competitiveness has fallen since September. It could also be a sign that rising rates are prompting some potential buyers to sit on the sidelines.
Of course, many markets remain extremely cutthroat, especially compared to pre-pandemic levels. Redfin named San Jose, California; Boston; and Providence, Rhode Island; as the markets with the highest instances of bidding wars in the country. All three cities had rates of competition above 78%.
“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,” Redfin Chief Economist Daryl Fairweather said in a news release.
Fewer buyers mean lower prices
When prospective buyers put their plans on hold, it changes the market. For example, some sellers are reacting by beginning to lower listing prices.
Numbers released by Redfin earlier this month showed that during a four week period in April, the sellers of 13% of homes for sale dropped their asking prices, up from 10% a month earlier. That's the biggest share of price decreases the market has seen since last November.
Realtor.com data also indicated that after two-plus years of double-digit growth across the country, overall housing prices have started actually dropping in some U.S. cities.
Here are the top 10 cities where prices have fallen the most, along with the annual change in median listing price as of March:
- Toledo, Ohio: -18.7%
- Rochester, New York: -17%
- Detroit, Michigan: -15.4%
- Pittsburgh, Pennsylvania: -13.7%
- Springfield, Massachusetts: -5.8%
- Tulsa, Oklahoma: -5.0%
- Los Angeles, California: -5.0%
- Memphis, Tennessee: -4.6%
- Chicago, Illinois: -3.7%
- Richmond, Virginia: -3.4%
(Realtor.com analyzed the 100 largest cities in the country and limited its top 10 list to one city per state.)
Don't celebrate just yet, though. While Realtor.com’s report acknowledged that prices tend to fall when there are fewer buyers competing for homes, it noted that “overall affordability remains a challenge” for many would-be buyers because of the high monthly payments that accompany rising mortgage rates.
The report also attributed some of the city-specific changes to an influx of smaller, cheaper listings and tougher job markets.
“There’s still not that much inventory; there’s still bidding going on,” Rafael Oseguera, a realtor with Pacific Inter Capital Investment Solutions, told Realtor.com. “It’s just not as aggressive as it was three or four months ago.”