Home prices began skyrocketing in summer 2020 and haven't come down since. In September, the average home's value rose 18.4% compared to September 2020, according to Zillow's most recent market report — a record jump in the website's history. Prices of new construction homes have increased more than 25% between the second quarter of 2020 when the pandemic hit the U.S and the third quarter of 2021, according to the Census Bureau.
There are some signs, however, that the market is softening, even if it's just a little. The rate at which prices increased in both August and September slowed. Anecdotally, some real estate agents and home watchers say they are seeing some sellers make small price reductions.
However, eager buyers shouldn't read too much into those tea leaves, says Robert Erickson, a real estate agent in Los Angeles: The market still very much favors sellers. Here's what he and others say is going on, and what they expect going forward.
When the housing boom began in earnest in the summer of 2020, many market watchers viewed it with healthy skepticism. But as demand continued at elevated levels into 2021 and more data revealed who the new wave of buyers were, a narrative emerged: Many millennials had held off until the uncertainty of the pandemic pushed them into the market.
"Home has become way more important," Erickson says. "It kept them safe. It kept them alive. It kept them away from other people."
At the same time, pandemic uncertainty has kept older homeowners who would normally be downsizing and selling their homes from doing so. That created an inventory crunch. Widespread supply-chain problems and labor shortages have slowed the construction of new homes, adding to the scarcity.
Those factors have pushed all aspects of the sale of a house, from pricing to contingencies to closing costs, heavily in favor of sellers, says Marshall Malone, a real estate agent in Birmingham, Alabama. "I wouldn't call it a hot market," he says. "It's a seller's market."
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Malone gives the example of a hypothetical house in Birmingham that's worth $350,000 but is about to be listed at $325,000 to encourage multiple offers. That's a smart strategy, Malone says. Given the current environment, the seller is almost guaranteed to get that bidding war.
"It's not balanced," Malone says. "The seller controls everything, and the buyer has very little to say about it."
Erickson, who describes himself mostly as a seller's agent, agrees. "I've sold more homes this year than I did all last year and the year before" combined, he says. He expects that trend to continue into 2022.
A big part of that boom comes from potential sellers who feel empowered by the equity that they've seen their homes gain in the last 18 months. Those homeowners come to him thinking, "I've looked online, and I already know what I think I can get" for the house, Erickson says. "So the question I get is, 'How much can I get for my house? Is this the time to sell?'"
Whatever price reductions you may see online are likely due to bad pricing on the part of sellers excited by the consistent growth in home values over the last 18 months, Erickson says. They overestimated the amount for which they could list their properties.
"If their neighbor sold in May for $1 million," he says, as a hypothetical, sellers think "they can get $1.2 million now because they think the market is going up."
Home sales usually slow in the fall and that, along with wariness from buyers tired from months of competitive house hunting, has "knocked [sellers] down to reality," Erickson says. In other words, "the price reduction isn't because the market is going down. It's because they got greedy, and they listed too high."
Erickson and Malone both anticipate the pandemic's boom market could continue well into next year.
"I am seeing a dip, but in spring we expect it to be fully loaded," Malone says. "So I would say the seller's market is still strong, and it really emphasizes the need to price your house really well."
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