Pricing a Home In A Softening Market

Tips For Pricing a Home In A Shifting Market

Feds Increase Rate

On July 27 the Federal Reserve increased the federal funds rate yet again by .75%, in an attempt to fight inflation. While a higher fed fund rate initially affects how much banks pay to borrow money the rate increase will trickle down and affect the interest rates consumers pay on short-term mortgage loans.

Pricing a Home In A Declining Market

Affect of Rate Hike on Mortgage Interest Rates

The rate hike is affecting short-term rates more than long-term rates such as mortgages. It’s been several weeks since the Fed increased the federal funds rate and mortgage rates actually dropped below 5% for the first time in four months.

While the 30-year fixed mortgage is lower than it was in June it is still higher than at the start of the year. The overall temperature of the real estate market is that it is softening from where it has been over the last two years.

A Look at The Numbers

So what does a softening real estate market look like? Let’s take a look at some of the key real estate market indicators.

Inventory Levels

The number of homes actively listed for sale, as well as the trend, can give us a reliable indication of what is happening in the real estate market. We have had a low level of inventory for several years which contributes to a seller’s market.

Birmingham Active Listings

With limited inventory, buyers don’t have much to choose from so they are at the whim of the seller and what they want to ask for the home they have for sale. This has resulted in homes selling at or above list price in many areas.

This trend now appears to be changing. While inventory levels are still lower than typical, data shows that the levels are rising.

Because there are more homes for sale, buyers now have more choices and can haggle a little more than they could. In addition, sellers have a little more competition to contend with and will not be able to hold out for the outrageous prices we’ve been seeing.

To price a home in the current environment you must be aware of what the most recent comps have sold for and keep an eye on what is available for sale. We’re not talking about what the comps sold for 90 days ago but rather what they sold for within the past 30 to 60 days.

Months of Inventory

Tied directly to the number of homes that are actively listed for sale is the months of inventory. This stat measures how many months it would take to sell out the current inventory of homes, given the current rate of sales, and if no other homes were added.

Birmingham Months of Supply


If homes are selling quickly, the current inventory will be depleted sooner rather than later. If home sales are occurring at a slower rate it will take longer to go through the inventory and the months of inventory will be higher.

An increase in the months of supply can be either short-term due to the seasonality of sales during the year or it could be a result of the softening market. As with most stats, they should be considered in aggregate rather than singularly since they all affect each other.

Day on Market

Over the past four years, we have seen a steady decline in the days on market (DOM). This makes sense because of the increase in demand due to low-interest rates and the declining levels of housing inventory.

Birmingham Days on Market

We saw 30-60 days on the market drop to less than a week. Homes were being sold right out of the gate as buyers jumped on any new homes going up for sale.

The days on market have been relatively stable for 2022 compared to the past four years. This difference appears to have occurred most notably in the first part of the year.

Historically, homes take longer to sell in the first quarter, however, in 2022 the difference between the first and second quarter was less noticeable. In the Birmingham metro area, we are starting to see an increase in DOM sooner that in the recent past.

Price Drops

Lastly, the number of price drops occurring is a very telling sign of the temperature of the market. A price drop over the past several years was almost unheard of, especially in the really hot areas of the market.

Birmingham House Price Drops

This has changed over the last several months. As you can see in the Redfin graph, there has been a spike in price reductions starting in May within the Birmingham metro area.

This could be caused by several things. Sellers who priced their homes prior to the Fed increasing their federal fund’s rate may have panicked and dropped their price before seeing what would happen to longer-term mortgage rates.

Some buyers also exited the market because they believed that mortgage rates would increase and they could not afford the higher payments. This reduction in potential buyers may also have resulted in sellers reducing their prices.

Bottom Line

While we are still in a robust real estate market compared to years past, there is no denying the fact that the market is changing and becoming softer. So, how can you go about pricing a home in a softening market?

signs of a soft real estate market

It’s important to keep in mind the basics of supply and demand. The supply of homes is increasing and the number of buyers has declined for various reasons.

Sellers cannot be as aggressive as they have been over the past two years. It is important to keep an eye on the existing inventory of homes to determine what type of competition you are up against.

The best advice is to follow the numbers and stats. Rather than set your price based on emotion, you must base the price on what is going on in the market, which I have outlined above.

If you have any further questions about pricing your home I would be happy to answer them for you. If you have anything to add leave a comment below and as always, thanks for reading.

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  1. The market is changing. It’s ok to say its due to the Higher interest rates, period. If rates were brought down to 2.5 we would be right back where we were a few months ago. The Fed is fighting inflation. There are no other various reasons. A smaller pool of buyers (due to higher interest rates) leads to a larger inventory. By avoiding mentioning that its do to higher rates is not going to feed the appraisal field any surplus of work.

    • The thing about it though is that long-term interest rates have not changed that much. I think it may be other areas of the market that are causing buyers to pull back, which is needed.

  2. The temperature is changing, and I respect you talking about it with specific stats and advice from those stats. Way to go!!


  1. […] require some additional thought.  Tom Horn, a real estate appraiser by profession, provides some tips for pricing a home for sale in a shifting market.  Getting the price wrong means a home will sit on the market without buyer interest and no […]

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