Are Buyers In The Driver’s Seat Now?

Do Buyers Have a Leg Up In Today’s Market?

The smell of a market shift is in the air but what does this mean for the average buyer? Over the past two years, buyers have been put through the wringer.

Are Buyers In The Driver's Seat In Todays Real Estate Market

The steep rise in home prices, and the market’s competitive nature, have tested the resolve of buyers. If they didn’t lose out on a contract for the home of their dreams they had to bid the price up way over the list price to even get the attention of sellers who have had an edge in the market since interest rates dropped after the COVID pandemic.

The decrease in interest rates triggered a frenzy in the market in 2020 and the recent increase in rates is again making its presence known. Will the rate increase be beneficial to buyers?

Conventional wisdom would indicate that an increase in rates should not be good for buyers, right? After all, a higher interest rate will result in a higher mortgage payment.

Increasing Home Prices

Average home prices across the nation have increased sharply in the past two years. This increase, combined with higher interest rates, makes home ownership unobtainable to many Americans due to the higher house payments, therefore many buyers have dropped out of the search for a house.

This decrease in the demand side of the housing equation has given the existing buyers a better advantage since there is less competition. Today I’m going to share some recent stats I pulled that show the existing buyers may be in a better bargaining position than they were six months ago.

Positive Signs For Buyers

Months of Inventory/Active Listings – The months of inventory is on the rise. Housing inventory has continued to dwindle over the past several years because the market was flooded with buyers who wanted to take advantage of low-interest rates.

Birmingham AL Months of Supply

These buyers gobbled up all of the houses that were for sale. But now, because of the higher interest rates, there are fewer buyers and the housing inventory is creeping up again to more normal pre-pandemic levels.

This increase in inventory creates more choices for buyers, whose numbers have also declined. So while some buyers have been removed from the market because they cannot afford the higher mortgage payments those that remain have more options to choose from.

Sales Volume – Sales volume has steadily increased from 2016 to 2021 with gradual increases being recorded almost every month. The most noticeable dip in sales volume occurred around May of 2020, shortly after the pandemic was announced.

Sales in 2021 are the highest up to that point. With sales cooling in 2022, this year is not expected to be record-breaking for the number of homes sold. This lower volume is another indicator that demand has decreased which puts the buyers still looking for a home in a little better power position for negotiating.

June Median House Price – One area that buyers do not have an advantage with is affordability. The median sales price of homes has continued to steadily rise over the last several years.

Since 2016 the median sales price of a home in the Jefferson and Shelby County area of Alabama for the month of June has increased by approximately 58%. These rapid increases in prices were less noticeable with lower interest rates, however, with the recent increases we have had, the monthly payments are becoming less affordable for the average buyer.

Price Reductions – What other stat could be more advantageous for buyers than the one that measures price reductions, right? Over the past several years we have not seen a significant increase in price reductions because sellers had buyers beating down their doors to make an offer.

BIRMINGHAM PRICE REDUCTIONS

Info. Courtesy Redfin

There are some natural monthly fluctuations in this stat, however, the overall number of listings with price drops has itself continued to drop over the last several years. We are now seeing price reductions more reminiscent of those prior to COVID.

This makes sense because as rates continue to increase, sellers will react to fewer offers by adjusting the price downward. This puts buyers in a stronger negotiating position than they have recently had.

Conclusion

Higher interest rates have resulted in some buyers being taken out of the market because they cannot afford the higher mortgage payments. The ones that remain have a slightly better advantage than they have had over the last 2 years.

The existing buyers are benefitting from an increasing inventory of homes, less competition from other buyers, and more price reductions. Buyers are not totally in the driver’s seat, however with more interest rate hikes planned for later in the year this may change but only time will tell.

If you have any questions about the appraisal process or need an appraisal, feel free to contact me, and as always thanks for reading.

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Comments

  1. I love the months of supply graph, Tom. It’s a powerful visual to tell the story of a change in your market. Looking forward to seeing how your visuals evolve in coming time.

    • Thanks, Ryan, and thanks for your help in the past when I have asked for your help regarding the best way to illustrate what is happening in my local market. Your an excellent resource to other appraisers and real estate professionals in your local market.

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