The world of real estate can sometimes feel like a roller coaster, and 2022 is no exception. Just one year ago, we were discussing record-breaking home sales, skyrocketing prices, and phrases like “appraisal gap” and “multiple offer situations.” But this year is different. Are we entering a buyer’s market?
Here’s what we know as we say goodbye to 2022 and look forward to a new year.
What Constitutes a Buyer’s Market?
Anyone who bought or sold a home last year – or represented those who did – knows what a seller’s market looks like. Lots of bidding wars, offers well over asking price, cash buyers, and homes under contract just as quickly as they hit the market.
In some ways, a buyer’s market is the exact inverse. The following are indicators that a buyer’s market is either on its way or already in full swing in a particular area:
- Homes are sitting on the market longer than in recent months.
- Sellers drop the asking price.
- No competition between potential buyers.
- Sellers are willing to offer incentives and/or concessions.
- Buyers are no longer offering above the asking price.
Other factors, like local economies, public opinions, and consumer confidence all contribute to real estate market trends.
Less Competition Means More Power for Homebuyers
Currently, we’re seeing many markets trend in favor of the homebuyer. As of September 2022, existing home sales had dropped 23.8% year over year, marking eight straight months of declining sales. Meanwhile, interest rates continue to rise rapidly, with 30-year mortgages the highest we’ve seen in two decades. Home prices remain steady, with many markets continuing to see values increasing.
High prices combined with high interest rates mean more would-be buyers are choosing to wait. Therefore, more homes are available, and fewer buyers are on the hunt.
It’s classic supply and demand. As supply increases, demand lessens, meaning the power shifts toward the homebuyer.
If this trend continues, we could see many more areas become full-blown buyer’s markets in 2023.
The Flight of the First-Time Homebuyer
One reason for the shift toward a buyer’s market is a marked decline in first-time homebuyers. A November 2022 report from the National Association of Realtors showed the lowest share of first-time buyers on record.
There are three potential reasons for their disappearance. For one, these buyers became discouraged over the past year, with investors scooping up homes at lower price points, edging first-time buyers out of the market. Secondly, even though home values are stabilizing year over year, prices continue to increase in most markets. Finally, escalating interest rates have simply priced many first-time homebuyers out of the housing market altogether.
In 2010, first-time homebuyers made up a staggering 50% of all home sales. In 2021, that number had dropped to 34%. And as of this writing, first-time buyers made up only 25% of home sales in 2022.
Without those first-time buyers vying for available homes, other homebuyers have less competition, which shifts the market in their favor.
Inspections and Negotiations
As the sales pace slows nationwide, buyers can finally enjoy some breathing room. Home inspections are increasingly crucial in the negotiation process. Last year, some buyers waived inspections entirely, if possible. Others agreed to only ask for repairs if required by a lender.
Fast forward to the current market, and buyers can take their time, examine the inspection report, and ask the sellers to address issues that may have been excused in the past.
Sellers are again reducing prices, offering cash at closing or other concessions based on inspections, and helping buyers with closing costs and other expenses. There is much more room for negotiation, which significantly benefits buyers.
Side note: if you’re selling your home, you can avoid costly repairs by prepping for your home inspection. Click here to read our tips and get prepared!
Is It a Buyer’s Market? That Depends…
The tides are certainly shifting in real estate markets nationwide. But whether or not we are in a buyer’s market depends on many factors. Some markets are cooling faster than others, meaning sellers are more willing to reduce asking prices and negotiate with buyers. Those markets certainly favor buyers.
However, other markets remain strong, with home prices holding steady or continuing to increase, low inventory, and lots of competition from interested buyers. Those markets don’t qualify as buyer’s markets yet; whether or not they will become buyer’s markets remains to be seen.