Bidding wars for homes in Seattle, San Jose, and San Francisco have crashed in the past year, reflecting an alarming national trend, according to a new report from Redfin.
The report found that the national bidding-war rate in August was 10.4%, down from 42% a year earlier. The rate printed at the lowest level since 2011.
At the start of 2018, the national bidding-war rate was 59%, then plunged as home buyers became uncomfortable with sky-high housing prices, increasing mortgage rates, and economic uncertainty surrounding the trade war. The housing market started to cool in late 2018, as the competition among home buyers collapsed by 4Q18, this is an ominous sign for the national housing market that could soon face a steep correction in price.
Even with eight months of declining mortgage rates in 2019, bidding-wars among home buyers continue to drop. This is somewhat troubling because the government’s narrative has been declining rates will boom housing, but as of Wednesday, mortgage applications continue to fall. Home buyers aren’t coming off the sidelines, and there’s too much uncertainty surrounding the economy with recession risks at the highest levels in more than a decade.
“Despite remaining near three-year lows, mortgage rates have failed to bring enough buyers to the market to rev up competition for homes this summer,” said Redfin chief economist Daryl Fairweather. Recession fears have been enough to spook some would-be buyers from making the big financial commitment of a home purchase. But assuming a recession doesn’t arrive this fall or winter, consumers will likely adjust to the new ‘normal’ of continued volatility in the stock and global markets, and the people who need and want to make a move will take advantage of low mortgage rates.”
As for one of the hottest real estate markets in the country, that being San Francisco, the bidding-war rate was 31% in August, down from 73.5% a year earlier. The lack of demand has certainly cooled housing prices, now expected to fall 1% YoY.
The rate in San Jose was 10.3% in August, down from 77% a year earlier, and in Seattle, another hot city for real estate, it saw its rate at 9.4%, down from 37.8% last August.
“Competition in the Seattle area has certainly slowed down since the second half of 2018. Last year, five out of five offers I submitted faced competition; now, it’s one in five,” said local Redfin agent Michelle Santos.
“Now, for desirable homes, competition is still fierce, and the winning offer is one that’s above the list price and waives contingencies. At the same time, average homes sit on the market for quite some time before they get any offers.”
With the rapid decline of competition among home buyers and a flood of inventory entering the market, real home prices are starting to correct in major cities. Real price change over the last 12 months is falling in Seattle, San Francisco, and New York, according to new CoreLogic Case-Shiller Home Price Index data.
With competition among home buyers evaporating in a very short period of time, this could mean a downturn in the real estate market is imminent.