If you've been paying any amount of attention to the real estate market, you may have noticed that mortgage rates have been steadily increasing throughout most of 2022. In fact, the average interest rate for a 30-year mortgage is over 5% as of early June.
When the Federal Reserve first lowered national interest rates at the start of the COVID-19 pandemic, buyers essentially flooded the market. Now that interest rates are increasing, some sellers are lowering their asking prices to make sure that buyer interest doesn't begin to wane. If you're searching for your dream home, you may be able to find it at a reasonable price.
Dropping Prices
There are several signs indicating that the market is adjusting to current economic conditions. Because of inflation and rising interest rates, many sellers fear their homes will remain on the market longer than intended, which could drive the price down and make the property unappealing to prospective buyers. Even though the buyer's market is still highly competitive, sellers don’t want to risk a slow sale, so some have started lowering their asking prices.
In May 2021, 6.2% of homes reduced their listing prices. During May 2022, this number increased to 10.5% of homes. It may seem like a small adjustment, but it's not the only indicator.
Increased Inventory
According to the May 2022 Monthly Housing Trends Report, the inventory of active listings in the U.S. increased by 8% over last year, which indicates that the competition is increasing among sellers. If a seller notices that there are many homes being placed on the market in their area, they may not want to be in a situation where their home is skipped in favor of the others.
The number of newly listed homes has increased by 6% over last year, which is another sign of possible price drops to come. The national median home price is still up compared to 2021 and 2020, but if more and more sellers start to reduce their asking prices, this points towards the real estate market shifting back to buyers. When market conditions are favorable to buyers, the negotiating power doesn't remain solely with the seller. Even if a seller hasn't dropped their asking price, they may be open to doing so during negotiations.
Even though interest rates are increasing, now is a great time to buy if you have good financials and access to enough funds for the down payment. Even a small decrease in asking prices and buyer competition should give you a better opportunity to buy a home at the right price.