High-End Pandemic Boomtowns Will Turn in Home Buyers’ Favor This Fall
After a California couple lost bids on 10 homes in a year and a half, real estate agent Kristin Halton thought her clients might be on the verge of giving up.
“They were getting tired,” said Ms. Halton, an agent with Douglas Elliman in Newport Beach, California.
But this month—just when they were about to call it quits, they found a house they loved. The couple was up against competing offers—but this time, only two others, rather than the dozens of people they’d competed with earlier in the year. They won the offer.
It’s a sign that the U.S. housing market is finally turning in buyers’ favor, after months of a hot seller’s market.
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“Many buyers took a step back over the last two to three months,” Ms. Halton said.
As rising interest rates slow demand and inventory increases, buyers in certain U.S. markets might finally find themselves with the upper hand.
“The rapid pace at which buyers were competing has slowed significantly,” said Re/Max CEO Nick Bailey. “Buyers have more choice on available inventory, and they’re moving away from being at bidding wars and having to offer far above asking price.”
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Luxury Market Sees Price Reductions, Greater Inventory
Data prepared for Mansion Global by Realtor.com found that the luxury market seems to be cooling faster than the overall market, making this fall an ideal time for buyers to strike.
Across all price points, the number of properties with price reductions was up 9.7% year over year. But in the top 5% of the market, the number of properties with price reductions was up by 95% on average.
“The overall market is seeing price cuts—but not nearly to the extent that the luxury market is,” said George Raitu, an economist for Realtor.com.
The data also found that the national median price of luxury properties went up by 2.4% from July 2021 to 2022, compared to 16.6% in the overall housing market.
“That’s a clear indicator that those price cuts… are beginning to take a much deeper toll on the luxury segment than on the overall market,” Mr. Raitu said.
Likewise, luxury markets on average saw the active listing count increase by 24.6% year over year.
Pandemic Hot Spots Start to Cool
Buyers will have the best luck in so-called pandemic boomtowns, which saw increased demand as people realized they could work remotely and live in places that prioritized lifestyle, as well as in secondary home markets that tend to fluctuate in price more than primary home markets.
“Those areas that have the highest booms and price appreciation during a seller’s market contract the most quickly,” Mr. Bailey said.
Boise, Idaho, is one such city. In July, 70% of houses for sale dropped their asking price, compared to 30% the year before. The number of single-family homes sold around Boise decreased 33%, and inventory had nearly doubled, according to data from the Intermountain Multiple Listing Service.
And in certain Phoenix ZIP codes, like central and affluent North Scottsdale, the number of homes for sale have more than doubled year over year, according to the Realtor.com report, with median listing prices declining as well.
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Beyond Phoenix and Boise, Mr. Bailey expects to see prices stabilize in markets like Las Vegas, Houston and certain parts of Florida, which also benefited from the pandemic housing boom.
Expect prices to remain more steady in these areas, rather than the accelerated appreciation they’ve seen in the last two years, he noted.
“The idea of flexibility of living where you want, working for who you want, is here to stay,” Mr. Bailey said. “Some of these markets that were a major boom during the pandemic will continue to be strong overall markets—they’re just going to stabilize faster than maybe some other areas.”
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Primary Home Market Demand Stays Strong
Buyers headed for cities that have seen a major influx of jobs, such as Austin, Texas, Seattle and Miami, may still find themselves in a competitive market. But a buyer’s experience will vary largely based on whether they’re buying in an area with primarily second homes or full-time residences.
David Siddons knows better than most how much neighborhood matters when it comes to buying a home. Mr. Siddons, an agent with Douglas Elliman in Miami, says that buyers’ are more likely to get a break in the secondary-home condo market, which are more prone to market fluctuations, versus in primary-home neighborhoods like Coral Gables, which are still seeing huge demand from people moving to Miami for jobs.
“It’s usually in the [second-home] market, when things drop off, that people are going to get deals,” Mr. Siddons said. “The primary markets are going to go along. There’s just not enough product, and the domestic demand is too strong.”
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As more condo projects come onto the market around Miami, inventory will increase, and the seller’s market could become a buyer’s market, he said.
Mr. Siddons has already been able to use the cooling market to a client’s advantage. Earlier this summer, he had been working with a client who had made a deal to purchase a condo priced over $10 million from a developer. Seeing the market move, he went back to the developer and asked him to shave $1 million off the price.
“The original conversation was: ‘You’re out of your mind,’” Mr. Siddons recounted. But a month went by, and the developer called back. He took the lower price.
“I think there’s an awareness with developers that they can’t just keep asking whatever they want in perpetuity,” Mr. Siddons said.
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What About Interest Rates?
It may seem counterintuitive that real estate agents, even with this year’s interest rate hikes, are still advising buyers to re-enter the market.
Even luxury buyers, who tend to be less influenced by rising interest rates than those buying lower in the market, have been impacted this year.
But the major discounts and the lack of bidding wars might be enough of a reason to swallow the high interest rates and act now anyways, Ms. Halton said.
“Don’t get caught up on the fact that interest rates have gone up because the fact remains that we’re still at all-time lows,” Ms. Halton said. “There’s a lot of opportunity.”
Buying when demand is low is much preferable to buying high, when multiple offers are almost a guarantee, and buyers often had to offer far over asking to secure a property.
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“Now a buyer can go in and make an offer and make a fair-market offer and negotiate the best price for them and the seller,” Ms. Halton said. “Buyers are not having to compromise size or location. If you take your time you can find exactly what you’re looking for.”
Mr. Bailey advises that buyers look at other financing options, too, such as adjustable rate mortgages or home equity lines of credit.
“The 30-year-fixed rate has been the only thing that everybody’s talking about, but the reality is that there’s other alternate mortgage products,” he said.
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Reaching an ‘Equilibrium’ in the Market
Throughout the fall and going into 2023, the housing market—including the luxury sector—should begin to normalize as prices growth slows, Mr. Raitu said.
“Borrowing costs are likely to continue rising, which will be reflected in both the economy as well as stock markets,” Mr. Raitu. As that happens, demand will continue to slow, along with price appreciation.
“Most of the home price appreciation happened in the first part of this year,” Mr. Bailey said. “With prices stabilizing, buyers shouldn’t expect to see major price increases on overall home values in the second half of this year.”
The takeaway? Buyers can breathe a sigh of relief in knowing that the period of the extreme seller’s market seems to be behind us.
“I think we’ll find an equilibrium in 2023, which is a good stable market,” he said.
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