Bidding Wars Continue to Tumble as Housing Market Rebalances
by Ellen Haberle | August 15, 2013
Competition in the US residential real estate market dropped for the fourth consecutive month in July, underscoring the market’s overall trend towards balance. Nationally, the percentage of offers written by Redfin agents that faced multiple bids fell to 63.3 percent in July, down from 68.6 percent in June, and 75.7 percent at the peak in March. Across the 23 major markets that Redfin serves:
- Bidding wars in San Diego and Orange County cooled the most in July with above 10 percentage point drops. San Diego saw bidding wars fall to 71.1 percent from 81.9 percent in June. In Orange County, bidding battles fell to 78.2 percent from 88.6 percent in June.
- Competition also eased markedly in San Francisco and Boston, with a drop of 9.2 and 8.9 percentage points, respectively.
- Baltimore was the only market to see competition ramp up; bidding wars grew 8.8 percentage points from 41.2 percent in June to 50 percent in July.
- Reduced competition also helped winning offers fall closer to list prices for the second consecutive month; nationally, the average difference between winning offers and list prices fell to 0.6 percent in July from 0.9 percent in June and 1.4 percent in May.
Table 1: Competitiveness by Market
RankMarketCompetition 07/2013Competition 06/2013Competition 07/2012Over Asking 07/2013Diff. vs. Ask 07/2013Buyer Fatigue, Budgets, Inventory, and Vacations in PlayThe slide in competition reflects multiple factors that are beginning to erode sellers’ market dominance across the nation:
Buyer Fatigue: First and foremost, Redfin agents report that buyers in the nation’s most competitive markets are growing weary. For example, Redfin Los Angeles agent, Ryan Stires,
reports that “Buyers in LA are worn out from losing bidding wars and are pulling back for now, hoping that competition will ease later this year.“ This buyer draw back is benefiting those who remain in the market. In Washington D.C., Redfin agent Philip Gvinter recently had a client who took a short break from writing offers in June to avoid the stress of bidding wars. In mid-July, he secured an $850,000, 3-bedroom, 2.5 bath home in Chevy Chase just below list price and without any competition.
Budgets: The combined effect of rising prices and mortgage rates continues to price buyers out of the market, reducing competition for available inventory. Nationally, the median home price per square foot for single-family homes was up 18.7 percent in July from the year before and average weekly 30-year fixed mortgage rates in July were up about one percentage point from May. For a $250,000 mortgage, this jump in prices and mortgage rates translates to a rise in mortgage payments of more than $300 per month.
Growing Inventory: Rising prices and mortgage rates are also driving homeowners to list their homes in greater numbers, which is boosting options for buyers. As of June, the number of single-family homes for sale in Redfin markets was up 7.8 percent from March and the national months of supply of inventory grew from 2.7 in May to 3 in June. Some homeowners who were underwater on their mortgages are becoming more confident that their homes can fetch a fair price and are deciding to list. Furthermore, our agents in San Francisco and Chicago report that mortgage rates are also leading homeowners to list. Homeowners, too, want to capitalize on historically low rates and move up before rates increase further.
Summer Vacation: Summer vacation probably also distracted some buyers from house hunting in July. Redfin agents in Washington D.C. and Atlanta report that many buyers left town in July but recognize that mortgage rates are still historically low and plan to return to house hunting in early fall.
Further Cooling on Tap for AutumnLooking forward, we expect that bidding wars will continue to cool slightly during the autumn months. The real estate market was atypically hot during autumn of 2012 because buyers were rushing to lock in low mortgage rates once home prices stabilized. Now that rates are higher, home prices continue to rise, and more inventory is coming available, buyers are likely to battle for homes less often. Also, reduced competition will limit the risky strategies, like waiving a financing or inspection contingency, that buyers need to use to secure a new home.
Table 2: Features of Winning Offers – What Percent of Winning Offers…MarketAll CashWaived FinancingPre-InspectionWaived Insp.Cover LetterFor more of Redfin’s bidding war stats and stories, email press@redfin.com.
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