Homeowners who locked in ultra-low mortgage rates during the pandemic are finally ready to sell. But given staggering home prices and interest rates, Americans aren’t really in the mood to buy right now.
Pending home sales in January hit the lowest level on record at the real estate firm Redfin, aside from a one-month dip in April 2020 when pandemic-era lockdowns ground the economy to a halt. (Redfin’s data dates back to 2012.) This drop in sales activity is in spite of a wave of new home listings, although supply is still far below pre-pandemic norms.
Redfin experts say this trend shows that homeowners who bought their homes or refinanced their mortgages during the pandemic — when rates were at an abnormally low 3% to 4% — are at last starting to sell. This so-called “lock-in” effect, which for years has contributed to a limited supply of homes on the market and elevated prices, is starting to fade.
“I’m seeing a lot more inventory hit the market than I have in past years, but it’s not nearly enough,” Charles Wheeler, a Redfin real estate agent in San Diego, said in the report.
Why homes aren’t selling right now
Normally, when a glut of houses come onto the market, that would be great news for would-be homebuyers.
With mortgage rates lingering around 7% and the typical sales price clocking in over $418,000, homebuyers just aren’t feeling all that excited. That one-two punch is keeping many buyers on the side lines. As a result, homes are sitting on the market for nearly two months, according to Redfin, notching a five-year high.
Of course, the colder months are usually slow to begin with for the housing market. But this January was particularly sluggish, with many buyers seemingly getting cold feet and backing out. Redfin estimates about 41,000 home-purchase agreements fell through last month. That equates to over 14% of all sales contracts — making for the worst January since 2017.
Still, for homebuyers willing to brave the housing market, some deals are out there.
“Buyers should know that they have a bit more negotiating power because there are more homes hitting the market,” Wheeler said.
Separate data from Zillow backs Wheeler up. Last month, the firm said, buyers had more negotiating power than in any January over the past five years.
And sellers seem more than willing to budge on price. According to Zillow, 23% of sellers slashed their asking prices last month, the highest level on record for January since the firm began tracking that rate in 2018.
Some more good news: The share of homes with price cuts is much higher in certain markets, including some popular ones.
For now, price cuts are most common in Phoenix (33.5%); Tampa, Florida (32.4%); Jacksonville, Florida (30.8%); Orlando, Florida (29.1%) and Dallas (28.7%).
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According to a recent report from Money.com, homeowners who took advantage of historically low mortgage rates during the pandemic are now ready to sell their homes. However, despite a surge in new listings, the demand for homes remains low due to high prices and interest rates.
In fact, pending home sales in January hit a record low at real estate firm Redfin, with only a slight dip in April 2020 during the height of pandemic lockdowns. This decrease in sales activity is despite an increase in inventory, although it is still below pre-pandemic levels.
Experts at Redfin attribute this trend to the “lock-in” effect, where homeowners who bought or refinanced their homes during the pandemic are now starting to sell. This effect has contributed to a limited supply of homes and elevated prices in the past, but it is now starting to fade.
However, even with more homes on the market, buyers are not feeling motivated to make a purchase. With mortgage rates around 7% and the average sales price over $418,000, many buyers are choosing to wait. As a result, homes are sitting on the market for an average of two months, the longest in five years.
Despite the slow market, there are still opportunities for buyers. Redfin agent Charles Wheeler notes that buyers may have more negotiating power due to the increase in inventory. Additionally, data from Zillow shows that 23% of sellers reduced their asking prices last month, the highest rate for January since 2018.
This trend is especially prevalent in popular markets such as Phoenix, Tampa, and Orlando, where over 30% of sellers have reduced their prices. Overall, while the housing market may be slow at the moment, there are still opportunities for buyers to find a good deal.
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