Such a move would have been unusual just a few weeks earlier. In July, the average home in the Frum area sold for more than asking price in about 12 days. He had entered the market, it turns out, during the Last gasp of nationwide vendor bonanza that finally stalled once interest rates began to rise. By the time Frum’s row house was up for sale, they had risen from record lows a couple of years earlier to about 5 percent. In October, they hit 7 percent, or more than double what they had been at the beginning of 2022, putting mortgage payments out of reach for many buyers.
As a result, the buying and selling rhythms have significantly slowed down. For sellers who, a year ago, saw their neighbors submit multiple offers with no contingencies, the idea of having to negotiate can be difficult to accept. In the meantime, buyers may not have to compete, but their money won’t go that far.
In this strange new real estate market, no one really feels like a winner.
What is it like to be a buyer?
For starters, many buyers have given up, at least temporarily, thanks to rising rates.
Emma Aarnes and her husband began looking for a two-bedroom apartment in their Manhattan neighborhood last spring after learning they were expecting a baby. In June, when the The Federal Reserve raised interest rates by the largest amount since 1994, the search for the couple took on more urgency. By July, they had found an ideal cooperative, but the same day they made an offer, the Fed raised rates again.
“We were like, okay, we’re stretched as we are. And if interest rates continue to rise, our confidence in being able to sell our current apartment [will go] down,” says Aarnes. The couple decided to withdraw their offer. “So we are still in our one-bedroom apartment, which we have rearranged so that there is a nursery for our next arrival.”
For buyers still on the hunt despite the fees, the decreased competition means they can actually bargain and take a night (or two or three) to consider their purchase. “They don’t have to make a purchase decision in a couple of hours like they were a year ago,” says Seth Neal, an agent with Silvercreek Realty Group in Boise. Furthermore, they can conduct a proper home inspection; there is also no pressure to waive appraisal or financing contingencies.
Deals that use unconventional financing, such as loans from the Federal Housing and Veterans Affairs Administration or first-time homebuyer assistance programs, now have an opportunity they didn’t have during the buying spree (when sellers could choose between cash offers). or offers with conventional financing).
However, buyers still have to contend with high prices because sellers have one important bargaining chip left: the number of homes for sale remains woefully low. The same economic uncertainty that keeps many buyers on the sidelines also discourages many potential sellers from listing. The low supply of houses on the market is the reason prices have not dropped more dramatically. (Fannie Mae predicts an average home price decline of 1.5 percent in 2023).
An added twist for buyers: Even with 7 percent interest rates, some are finding that renting isn’t any better. Starting in August, rents nationwide had increased more than 12 percent over the past year, according to Zillow data.
High school teacher Binh Thai began looking to buy after the Brooklyn landlord raised his rent last summer by nearly 80 percent, from $3,100 a month to $5,500. When Thai began searching for him in August, lenders were quoting him rates of 4.9 percent. Now that he has found a spot, he expects almost 6.9 percent. But that monthly payment is still less than the new rent from him.
“I’ve had moments where I was like, ‘Am I making a mistake?’ he says. “Ultimately, this is my only chance. I’ve always wanted a house. On a teacher’s salary, it’s been really challenging.”
What it is to be a seller
Sellers today have to rush to make deals happen. “Listed agents and sellers are having to work a lot harder than they have in recent years,” says Erika Levack, a Compass agent in Austin.
Sellers are now helping with closing costs and offering to make repairs. Many are helping their buyers cover the cost of “lowering” their mortgage rates (when you pay a fee at closing to lower the rate).
Peter Anderson is preparing to sell his home in Coeur D’Alene, Idaho. “We needed a new roof, we did it this summer, and we had to buy a new heat pump in the spring,” he says. “A year ago, we probably could have sold the house as-is and not had to do that.”
Levack worked with buyers who put contracts on newly built homes last December, when rates hovered around 3 percent. Buyers who didn’t pay more to lock in those long-term rates are now looking at monthly payments that may be unaffordable.
For one group of clients, Levack says he approached the builder to say his buyers would have to back out “unless you guys do something.” In exchange, the builder gave them $46,000 to lower their rate. A year or two ago, Levack says the reaction would have been more like: “’Okay, walk away. We’re going to sell this house for more money anyway. And now they’re struggling to move their inventory and they’re offering all kinds of incentives.”
Some sellers have started advertising these sweeteners early on, including offers to help with closing costs on the listings themselves. Others need more convincing.
“I’ve seen a lot of people price a little high based on prices in the summer, early spring and [the listings are] just sitting there,” says Mackenzie Grate, an agent for Machree Group in New York. “They are not quite ready to accept that the market has changed.”
Levack has been warning sellers that the market changes every few weeks. To arrive at a realistic listing price, he says, “we have to look at the data very closely.” What he reveals can be painful.
Levack currently has a listing in Austin with the same floor plan and finishes as a nearby home that sold for more than $1 million last November. “We are in contract [for] way below that, and that’s the nature of where things are,” she says.
Larry Frum, the Maryland salesman who signed up in August so he could move to a new job, finally got an offer on his row house in October. As part of the terms, Frum will have to pay the buyer’s closing costs.
When he gets to Seattle, he plans to rent.