Two primary issues plaguing the housing market are heightened mortgage rates and lack of inventory. Buyers are facing historically high home prices, years of elevated mortgage rates, limited inventory from unmotivated sellers, and increased competition.
Though the increased competition over the past several years has shifted market favor toward sellers, the tide may be turning for buyers.
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Realtor.com recently released its February Housing Market Trends report, and the results indicate that the housing market may pick up soon.
Home buyers waiting on the sidelines for conditions to improve may find this spring is the right time to strike. However, demand may be even stronger as buyer conditions improve during peak house hunting season.
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Sellers are coming back to the market
When mortgage rates began climbing in 2022, both buyers and sellers were disincentivized to enter the housing market. Most sellers are locked into competitive rates well below the nearly 7% levels the market is currently seeing.
The lack of sellers listing their homes contributed to the dearth of affordable homes, especially for first-time buyers. However, as time goes on, sellers appear to be adjusting to the slower market conditions.
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The number of homes for sale increased this month, growing 27.5% year-over-year from February 2024. Though sales are improving, they still haven’t reached pre-COVID inventory levels in 2017 and 2019.
However, Realtor.com economists found that new listing activity has reached its highest level since February 2021, when mortgage rates were below 3%.
Though mortgage rates have remained stubborn, these inventory improvements show promise for the spring housing market and beyond.
Buyers have more negotiating power
Challenging market conditions have created sluggish buyer demand, dampening home sales. However, lower sales have left houses on the market longer, making sellers open to negotiation.
The average time homes spend on the market has been increasing for the past year. This February, homes spent an average of 66 days on the market, an increase of five days from February 2024.
Danielle Hale, Chief Economist at Realtor.com, notes that lower home sales may be the catalyst needed to stabilize supply and demand in the housing market.
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“While rates remain elevated, we are beginning to see green shoots in the market as sellers grow tired of waiting for significant changes in interest and mortgage rates,” she said. “If these trends continue for the next few months, we could see a market that is entering into more balanced terrain, with rising inventory and a potential future slowdown in price growth.”
The number of homes with price reduction increased by over 2% from February 2024, the highest amount in any February since 2016. This development may indicate that sellers are adjusting their expectations to the challenging housing market, and buyers will be able to more competitive pricing going forward.
“While the market does not look like it did before the pandemic, we are moving away from the ultrahigh demand, low inventory period we saw in 2021 and 2022,” Hale continued.
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