Would-be homebuyers are once again coming out of hibernation, this time prepared to strike a deal before competition heats up.
The volume of applications for a mortgage increased 9.9% from one week earlier on a seasonally adjusted basis for the week ending Jan. 10, according to the Mortgage Bankers Association (MBA). Some of that activity was driven by purchase applications, which increased 6% from the previous week, as buyers capitalized on the year-end decline in rates and a small boost in inventory levels.
For rate-sensitive buyers who have been waiting on the sidelines, these first few weeks of the year could offer a window to purchase, experts said. Still, any relief in affordability could be short-lived.
Bidding wars are already erupting in some areas of the US, which could drive up home prices among the few attractive listings. Additionally, new economic data this week could sway the Federal Reserve to postpone its planned rate cuts — keeping rates higher for longer.
“Prices here are all over the board. If your house is updated with the most recent home trends, you’re going to get offers,” St. Louis-based Stayce Mayfield, a Redfin premier agent, told Yahoo Finance. “We’re still getting bidding wars with anywhere from 20-30 offers — though it still depends on the location and condition.”
Mayfield added, “Some of our buyers agents are still experiencing multiple offers and struggling to get their clients in a home.”
Read more: Mortgage rates below 7% — is this a good time to buy a house?
Where bidding wars are erupting
As the new year kicked off, more buyers trickled into the housing market.
According to Redfin, mortgage-purchase applications were up 3% compared to a month ago during the first week of January. Redfin agents also reported requests for tours were up 5% from this time in December, and there were 9% more new listings on the market in the four weeks ending Jan. 7 compared to a year ago.
“Right now, I think the majority of our agents all over the country expected to have a busy first few weeks in January given consults,” Redfin spokesperson Allison Braun told Yahoo Finance. “However, given the storms that are pushing through the country [that’s] really leaving potential homebuyers at home and on the sidelines.”
By contrast, areas with good weather saw an uptick in activity. One Redfin agent in Phoenix noted an unusual uptick in activity this week.
“Telling my buyers to get in the market now, interest rates are lower and competition is low,” said Phoenix premier agent Heather Mahmood-Corley. “I imagine competition will really pick up in March and prices will start to soar. March really is a hot month here, the weather starts to get better.”
The uptick in competition, though, could erode that newfound affordability. According to Redfin, at least 24% of homes sold in the four weeks leading up to Jan. 7, sold above list price. On average, the median price of homes sold was $363,125, up 4.1% year over year.
Meanwhile, South Carolina-based president of Home Loans Inc. Jason Sharon, also noted a pickup in bidding wars in Charleston, S.C. — as well as in Atlanta and Huntsville, Ala. Some of those buyers may also have been lured into the market by the influx of new listings.
“I am already seeing bidding wars in cities with good job markets,” Sharon told Yahoo Finance. “Generally, they are houses in good condition, at or below the median price point. If mortgage rates continue their slow decline, I believe we will see more buyers enter the market, causing even more bidding wars.”
Buyers were also picky about where they put their money.
“No one wants to do a fixer upper right now, unless it’s in a really desirable neighborhood and the price is right,” Mayfield said. “I was working with a first-time homebuyer recently. We put in six offers (in the 200 range) and all the houses we put offers on kept losing. One of the houses we put an offer on had 33 other offers.”
Read more: How to buy a house: 13 steps to getting the keys to your new home
‘Demand will depend on mortgage rates’
Though competition has seemingly begun to pick up in some segments of the US, mortgage rates could destabilize that momentum.
“Demand in the market, especially from first-time buyers, will likely depend a good deal on what happens with mortgage rates,” Nicole Bachaud, Zillow senior economist, told Yahoo Finance. “As it looks now, rates are likely to stay down from the 8% peak.”
Within the last three months, mortgage rates have plunged more than a full point to a low of 6.62% the week ending Jan. 4.
The dip in rates saved potential buyers an average of $325 on their monthly mortgage payment from the all-time high set in the four weeks ending Oct. 22, Redfin found. Still, at a rate of 6.62%, buyers would have an average payment of $2,399 — up 7.4% year-over-year.
“While lower rates might sound like a saving grace to affordability, rates are still fairly high, keeping the cost of a mortgage out of reach for many,” Bachaud said.
Those hesitant to re-enter the market may face slightly higher mortgage rates in the near term.
Both inflation and unemployment readings came in higher than expected in December — indicating that the Federal Reserve may hold off on cutting interest rates. According to Realtor.com chief economist Danielle Hale, that could keep mortgage rates “higher for longer,” potentially causing rates to increase over the next few weeks.
The annual inflation rate increased to 3.4%, its highest reading since the 3.7% observed in September. According to the government report, shelter inflation including housing and rent costs continued to be a large influence.
While shelter costs fell from a high of 8.2% in March of last year, they were still up 6.2% year over year in December. According to Realtor.com, shelter costs need to fall to 3.5% in order for inflation to come on target.
“[Elevated rates] will curb total demand, as otherwise would-be buyers look for housing opportunities elsewhere, like single-family rentals,” Bachaud said.
‘Buyers aren’t likely to see price cuts’
As competition picks up, those waiting around on the sidelines may miss out on opportunities to negotiate a price reduction.
According to Zillow, the share of listings with a price cut in December was just under 16% — the lowest since April 2022.
“Sellers are holding firm on prices, likely thanks to the slower pace of price growth helping sellers (and buyers) know what to expect when it comes to setting a price,” Bachaud said. “Price cuts are never popular in the winter.”
Despite an influx of new listings this past month, the overall shortage of inventory was once again to blame for waning price cuts.
Newly listed homes in December were 9% above 2022 levels as sellers showed up in larger numbers, Realtor.com found, marking a second month of increased listing activity after a 17-month streak of decline.
“Competition is complicated. As rates go down there will be more buyer activity but because there has been such little inventory and since homeowners have been waiting, how much will this motivate sellers to go to market?” Scott Driscoll, Boston-based Redfin premier agent, told Yahoo Finance. “I do think there will be a lot more activity from sellers.”
Still, active inventory in December remained 36% below typical 2017 to 2019 levels. That’s kept home prices propped up, Realtor.com noted. While the national median list price declined seasonally to $410,000 last month, prices were growing 1.2% compared to a year earlier.
”Competition in the market today is a bit stronger than pre-pandemic norms. Although high costs have pushed a lot of first-time buyers to the sidelines, there are also far fewer choices,” Bachaud said. “Buyers aren’t likely to see a lot of price cuts, and should expect some opposing bids for the most attractive listings.”
‘New homes provide options for hungry buyers’
Some of the pressure in buyer demand could be soothed by new construction.
Single-family home construction surged in November after declining mortgage rates helped relieve some affordability concerns. Overall, housing starts increased to a seasonally adjusted annual rate of 1.56 million units, according to the US Department of Housing and Urban Development and the Census Bureau.
Should that rate continue to trend lower, that could provide a boost to new construction, noted the National Association of Home Builders.
“Unless we see new homes starts rise to 2 million homes per year, the seller’s market will remain strong,” Sharon said.
Homebuilders reported more confidence, as lower rates have also attracted more buyers back to the market. With the share of previously owned homes on the market still low — builders can still get away with offering incentives for prospective buyers.
In December, 36% of builders said they offered a price cut averaging 6%. Meanwhile, 60% of builders offered sales incentives of all types, the same as November, but slightly down from 62% in October.
“New construction will continue to play an important role in bringing more options to the market,” Bachaud said. “As rates cool off from their peak, homebuilders are more optimistic about the future, increasing the number of projects they are starting this winter. Hopefully those starts translate into more new homes hitting the market to cool competition and provide more options for hungry buyers.”
Gabriella is a personal finance and housing reporter at Yahoo Finance. Follow her on X @__gabriellacruz.
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