Homebuyer competition dropped in May for the fourth consecutive month, according to a report from Redfin published Friday.
The report found, nationwide, 57.8% of offers written by Redfin agents in the 36 metropolitan areas analyzed faced at least one competing bid, down from 60.9% in April and a pandemic peak of 68.8%, recorded a year prior.
In May, the typical home in a bidding war received 5.3 offers, down from 6.8 offers in April and 7.4 offers in May 2021.
“Homes are now getting one to three offers, compared with five to 10 two months ago and as many as 25 to 30 six months ago,” said Jennifer Bowers, a Redfin real estate agent in Nashville, according to a news release. “Offers also aren’t coming in as high above the list price as before. I recently listed a three-bedroom, three-bathroom home in a super cute neighborhood for $399,900. It ended up going under contract for $12,000 above the list price with an inspection, whereas three months ago, the buyer probably would have paid $60,000 over asking and waived the inspection.”
Experts attribute the slowdown to rising mortgage rates, which rose 75 basis points this week, the largest one week increase since 1987, and continually surging home prices. The typical monthly mortgage payment is now $2,514, up 49% from a year prior when mortgage rates were between 2 to 3%. Redfin expects the bidding war rate to fall below 50% by the end of the year.
However, homebuyer competition increased on a year-over-year basis in three of the 36 metro areas analyzed: Las Vegas (up 9.1 percentage points to 74.5%), Worcester, Massachusetts (up 4.5 percentage points to 81.8%) and Miami (up 1.1 percentage points to 63.2%).
The largest annual decline in bidding war rates was recorded in Providence, Rhode Island, which fell from 82.7% in May 2021 to 45.3% in May 2022. Riverside, California’s bidding war rate dropped the second most falling from 73.7% in May 2021 to 41% this year, followed by Raleigh, North Carolina, which dropped from 82.9% to 52.2%. In addition to seeing the largest annual decline in competition, homebuyers in Riverside and Providence also had the lowest overall bidding-war rates. Olympia, Washington (47.2%), Honolulu (47.8%), and Minneapolis (48.7%) rounded out the bottom five.
On the other end of the spectrum, Worcester, Massachusetts (81.8%), Las Vegas (74.5%), Boston (72.6%), Dallas (72.3%) and Philadelphia (69.3%) had the highest bidding war rates among the metro areas analyzed.
Another sign of a slowing housing market is the increase in number of homes undergoing price drops. During the four-week period ending June 12, on average, 5.6% of homes for sale each week had a price drop, for a total of 22.4% of homes listed undergoing a price drop during the four-week period. It’s the highest level recorded since 2015 when Redfin started keeping track.
“The housing market isn’t crashing, but it is experiencing a hangover as it comes down from an unsustainable high,” said Taylor Marr, Redfin’s deputy chief economist, in a statement. “Housing demand has already cooled significantly to the point that the industry has begun facing layoffs. This week’s rate hikes will further stretch homebuyers’ budgets to the point that many more may be priced out. While a lot of home sellers are already dropping their prices, more homeowners will likely decide to stay put now that the mortgage rate on a new home is significantly higher than their current one.”