Buyers ‘Take a Deep Breath’ As Housing Market Calms

Prices are still high, but more on the market means fewer bidding wars

Real estate agent talking to a couple while showing them a new apartment during coronavirus pandemic.
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When a client moving to the East Coast from California came to Greenwich, Connecticut, last week to look at houses, it wasn’t a problem that her husband couldn’t make the trip at the last minute, according to real estate agent Robin Kencel. The woman looked at three houses she liked, but decided to do what would have been almost unthinkable earlier in the summer, Kencel said: wait a month until her husband could return with her.

“There was no urgency on their end to make a move,” said Kencel, an agent with the real estate broker Compass. “If this was a different point in time, they would have been feeling the need to jump on something right away.”

Key Takeaways

  • Homebuyers finally have a little more breathing room after a year of bidding wars and desperate tactics, according to recent data and real estate agents.
  • Because more homes are coming on the market now, the competition isn’t quite as fierce and buyers feel they have less to lose by taking their time, agents say. 
  • Some aspects of the housing market may have changed permanently, and it’s too early to say what the new normal will look like.

Moderation is starting to return to a housing market that’s been so tilted in favor of sellers that, only a few months ago, prospective buyers were compelled to write letters begging for their offers to be selected among the many that poured in chasing the few available homes. While prices are still near record highs, there’s no longer as severe a shortage of houses on the market, making bidding wars a little less common, according to recent data.

“It’s almost weird to see homes on Monday and Tuesday that were listed Thursday and that aren’t under contract,” said Michael Perry, a Zillow real estate agent in Salt Lake City. “We’re definitely starting to see the return of normalcy.”

Nationwide, the number of houses for sale increased 7.3% in July, the National Association of Realtors reported Monday, marking the fifth month that inventory has moved farther away from the record low reached this winter. While the 1.32 million homes on the market would still only last 2.6 months at the country’s current pace of sales (well below the 6 months associated with a more moderate housing market), the bigger inventory is starting to help rebalance supply and demand, according to agents. The market got so hot that even sellers were arguably at a disadvantage, not only because some buyers were starting to walk away from the sky-high prices, but because they in turn had little choice when buying.

Real estate company Redfin said the share of Redfin offers that faced at least one competing bid dropped to 60% in July, down from about 67% in June and far off its pandemic peak of 74% in April. And twice as many sellers are actually lowering their listing price, with 4.9% of listings having had a price drop as of Aug. 8, up from 2.3% in March, according to a Redfin analysis of national data.

There are signs that sale prices are also easing up a bit, marking the return of normal seasonal patterns that were disrupted by the pandemic. The median price of homes sold in July dropped slightly to $359,900 from a record $362,800 in June, the National Association of Realtors said in Monday’s report—a typical seasonal pattern that had gone the opposite direction in 2020.

Correcting the Imbalance

Greenwich, the tony suburb of neighboring New York, saw a wave of city-dwellers seeking to move to less densely populated areas during the pandemic, said Kencel, but that trend is starting to subside, especially as more homes have come on the market. What’s more, out-of-town buyers have stopped making purchases after only seeing houses through video conferencing, like they did earlier this summer. 

“We had a huge correction in the imbalance between demand and supply over the past 17 months,” Kencel said. “Now that it’s more in balance, I think we have satisfied a lot of the pent-up demand and the prolonged urgency that, in our case, particularly Manhattanites were feeling.”

Previously, the Salt Lake City market was so overheated that, at one point, Zillow’s Perry helped a client make a bid $500,000 above asking price—and lost. 

But earlier this month,  he took clients to a desirable listing that drew 52 visitors to an open house, but ultimately attracted just one offer. The same property would have been deluged with offers if it had been put up for sale earlier this year, he said.

Indeed, home values in Salt Lake City may have already peaked, according to Zillow—prices fell 2.9% from June to July, the first time since January they didn’t rise. And while inventory in the area is only two-thirds what it was a year ago, it’s increased for the past five months. 

Signs of a cooling off aren’t as clear in other areas of the country, though. In Frederick, Maryland, Peter Murray of Murray & Co. Real Estate said he hasn’t noticed any kind of slowdown in demand, though he has seen fewer bidding wars due to sellers pricing their properties more in line with market expectations.  

“There’s just an appetite from buyers. They want to make all-cash offers and cash out their 401(k)s,” Murray said. “Cashing out their savings accounts just to be able to get a property—it doesn’t make any sense to me.” 

The Return of Calm

Even as the market calms down, the new reality might not be quite the same as the old. 

For example, many buyers earlier this year skipped home inspections to make their offers more attractive. The inspections have made a bit of a comeback in his market, Perry said, but the timeframe for them has been drastically shortened, to four or five days typically from the normal two weeks. 

In addition, low mortgage interest rates that helped fuel the housing boom haven’t increased that much, so buyers who come up short in a bidding war can still feel somewhat confident they’ve got time to find something else, Daryl Fairweather, chief economist for Redfin, wrote in a recent commentary. 

It’s too soon to say which of the pandemic-era changes will stick around, Kencel said. But for now, at least, a little calm has returned. 

“People seem to think they can take a deep breath,” she said.

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.