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Potential homebuyers are emerging from hibernation once again, this time ready to close on deals before competition heats up.
According to the Mortgage Bankers Association (MBA), mortgage applications rose a seasonally adjusted 9.9% from the previous week for the week ending Jan. 10. Some of this activity was due to purchase applications, which rose 6% week over week as buyers took advantage of year-end lower interest rates and slightly higher inventory levels.
Experts said the first few weeks of the year could present a buying opportunity for rate-sensitive buyers who have been on the sidelines. Still, affordability relief may not last long.
Bidding wars have already erupted in some parts of the United States, potentially driving up home prices for a few attractive properties. Additionally, new economic data released this week could prompt the Fed to postpone its planned rate cuts and keep rates high for an extended period of time.
“Prices are high across the board here, and if your home is updated with the latest housing trends, you’ll get offers,” says Stace Mayfield, a St. Louis-based Premier Agent with Redfin. he told Yahoo Finance. “He’s still in a bidding war with 20 to 30 companies, depending on location and conditions.”
Mayfield added, “Some of our buyer agents are still receiving multiple offers and are having a hard time getting clients into homes.”
read more: Mortgage rates below 7% — is now a good time to buy a home?
Where bidding wars are breaking out
As the new year began, more buyers trickled into the housing market.
According to Redfin, mortgage purchase applications were up 3% in the first week of January compared to a month earlier. Redfin agents also said tour applications were up 5% from this time in December, and new properties on the market in the four weeks ending Jan. 7 were up 9% compared to a year ago. reported.
Redfin spokeswoman Alison Brown told Yahoo Finance: “At this point, I think the majority of our agents across the country were anticipating a busy first few weeks of January based on their consulting content.” Told. “But given the storm that is hitting this country; [that’s] This leaves potential home buyers in their homes and on the sidelines. ”
In contrast, areas with good weather experienced increased activity. One of my girlfriends, a Redfin agent in Phoenix, noticed an unusual increase in activity this week.
“We’re telling buyers to get into the market now because interest rates are low and there’s less competition,” Phoenix Premier Agent Heather Mahmoud-Khoury said. “I think competition will really pick up in March and prices will start to go up. March is a really hot month and the weather is starting to get nicer.”
But increased competition could undermine newfound affordability. At least 24% of homes sold in the four weeks ending Jan. 7 sold for above list price, according to Redfin. On average, the median price of homes sold was $363,125, an increase of 4.1% year over year.
Meanwhile, Jason Sharon, president of South Carolina-based Home Loans, also noted that bidding wars are heating up in Charleston, South Carolina, as well as Atlanta and Huntsville, Alabama. An influx of new properties.
“Bidding wars have already begun in cities with good job markets,” Sharon told Yahoo Finance. “Typically, these are homes in good condition that are below the median price. If mortgage rates continue to decline slowly, I think more buyers will enter the market and bidding wars will become more intense.”
Buyers were also particular about where they put their money.
“Nobody wants to do a fixer-upper right now unless it’s in a really desirable area and the price is right,” Mayfield said. “I was recently working with a first-time home buyer and we had six offers (in the 200s) and we kept losing on every house we made an offer on. One of the houses we made an offer to had 33 other offers.”
read more: How to buy a home: 13 steps to get the keys to your new home
“Demand is influenced by mortgage interest rates.”
Competition appears to be starting to pick up in some parts of the U.S., but mortgage rates could destabilize that momentum.
“Market demand, particularly from first-time buyers, will depend largely on what happens with mortgage rates,” Nicole Bashaw, senior economist at Zillow, told Yahoo Finance. “At this point, interest rates are likely to continue falling from their peak of 8%.”
Mortgage rates have fallen by more than a percentage point over the past three months, hitting an all-time low of 6.62% in the week ending January 4.
Lower interest rates have helped potential buyers save an average of $325 on their monthly mortgage payments, down from record highs set in the four weeks ending Oct. 22, according to a Redfin study. Still, if the interest rate is his 6.62%, the average buyer will pay $2,399, an increase of 7.4% from the previous year.
“While lower interest rates may sound like affordable savings, interest rates are still quite high, putting the cost of a mortgage out of reach for many people,” Mr Bashaw said. .
Those who are hesitant to re-enter the market may see slightly higher mortgage rates in the short term.
Inflation and unemployment were both higher than expected in December, suggesting the Federal Reserve may hold off on cutting interest rates. This could cause mortgage rates to “remain high for an extended period of time,” according to Daniel Hale, chief economist at Realtor.com, and could cause rates to rise over the coming weeks.
Annual inflation rose to 3.4%, the highest level since September’s 3.7%. Shelter inflation, which includes housing costs and rent, continues to have a significant impact, according to a government report.
Although shelter costs have come down from a high of 8.2% last March, they were still up 6.2% year-over-year in December. According to Realtor.com, shelter costs would need to drop to his 3.5% for inflation to reach its goal.
“[Elevated rates] Otherwise, aggregate demand will be suppressed as prospective buyers seek housing opportunities elsewhere, such as single-family rental properties, Bashaw said.
“Buyers are unlikely to accept price reductions.”
As competition increases, bystanders may miss opportunities to negotiate lower prices.
According to Zillow, just under 16% of listed stocks lost value in December, the lowest level since April 2022.
“Sellers are firm on prices, probably because the pace of price increases has slowed and buyers and sellers now know what to expect when setting prices,” Bashaw said. . “Prices are never popular in the winter.”
Despite a flood of new listings last month, overall inventory shortages again caused price declines to slow.
The number of newly listed homes in December was 9% above 2022 levels due to a large number of sellers, according to Realtor.com, marking the second straight month of increased listing activity after 17 consecutive months of decline. .
“Competition is complex. Lower interest rates will likely lead to more buyer activity, but with inventory so low and homeowners waiting, how much will sellers be willing to go to market? ” Boston-based Redfin Premier Agent Scott Driscoll told Yahoo Finance. “I think there will be more activity on the seller side.”
Still, active inventories in December remained 36% below typical levels from 2017 to 2019. Realtor.com noted that this is supporting home prices. The national median list price fell seasonally to $410,000 last month, but prices rose 1.2% year over year.
“Today’s market is a little more competitive than pre-pandemic norms, with high costs forcing many first-time buyers to the sidelines, but with far fewer options,” Bashaw said. Told. “Buyers are unlikely to expect significant price reductions, and the most attractive properties will likely receive counter bids.”
“New homes offer choice to hungry buyers.”
Some of the buyer demand pressure may be alleviated by new construction.
Construction of single-family homes surged in November as lower mortgage rates partially alleviated affordability concerns. Overall, housing starts increased at a seasonally adjusted annual rate of 1.56 million units, according to the U.S. Department of Housing and Urban Development and the Census Bureau.
If this rate continues to trend downward, it could spur new construction, the National Association of Home Builders said.
“Unless new housing starts increase to 2 million units per year, the seller’s market will remain strong,” Sharon said.
Home builders reported feeling more confident as lower interest rates brought more buyers back to the market. The share of existing homes in the market remains low, so builders may be able to avoid this by offering incentives to prospective buyers.
In December, 36% of builders said they offered an average price reduction of 6%. Meanwhile, builders who offered any type of sales incentive were at 60%, the same as in November, but slightly down from 62% in October.
“New construction will continue to play an important role in bringing more options to the market,” Bashaw said. “As interest rates fall from their peak, home builders are becoming more optimistic about the future, with an increasing number of projects starting this winter. Hopefully these starts will bring more new homes to market.” We hope to send out, cool competition, and provide hungry buyers with more choice.”
gabriella I’m a personal finance and housing reporter for Yahoo Finance. Follow her on X @__Gabriela Cruz.
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