Competition in the U.S. housing market is slowing with the shift to the fall season bringing prices down and creating a buyer’s market. Even with mortgage rates at close to their lowest point in three years, homebuyers are taking their time to make real estate purchasing decisions.
The Home Purchase Sentiment Index (HPSI) from Fannie Mae shows that consumer opinions improved last month, increasing 0.1 points to 93.8. This is a growth of 5.8 points compared to the same time last year.
The improvement is mostly due to a boost in the number of people who think mortgage rates will continue to decrease in the next 12 months, which jumped 11 percentage points to 17% – an increase of 35 percentage points from the same time last year.
Survey data also showed a decline in the share of respondents who disagreed that now was a good time to buy or sell a home. There were also fewer people who were not worried about losing their job in the next 12 months. This points to concern among consumers about the housing market and the economy in general.
In a CNBC interview, Doug Duncan, chief economist at Fannie Mae, said:
“Unfortunately, much of the lower interest rate environment can be attributed to global economic uncertainties, which appear to have dampened consumer sentiment regarding the direction of the economy. We do expect housing market activity to remain relatively stable, and the favorable rate environment should continue supporting increased refinance activity.”
Real estate agents across the country have been noting that, while the market is still doing well, buyers are less likely to make purchase decisions quickly, and are taking time to find exactly what they want. Without the pressure of stiff competition, buyers are able to view more homes and spend time comparing and reviewing what they’ve seen – rather than snapping up something just to beat out other buyers.
For example, in August, more than 10% of offers written by Redfin were part of a bidding war, based on data from the brokerage’s monthly survey. In comparison, that number was 42% just a year ago. In an interview with CNBC, Daryl Fairweather, chief economist at Redfin, shared:
“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. Recession fears have been enough to spook some would-be buyers from making the big financial commitment of a home purchase.”
This has made sellers less likely to be able to increase home prices the way they have in the past.
When it comes to mid-range and higher-end homes, supply is increasing. But, for entry-level homes – where buyers have smaller budgets and lower mortgage rates are more important – the supply can be tight, and potential buyers might find that strong competition still exists in that market.
More Moderate Prices
Although overall prices for U.S. homes for sale are more than they were a year ago, price increases have been plateauing. But, with lower mortgage rates, purchasing a home right now can be enticing for those who are looking and want to take advantage of the potential savings. Compared to a year ago, the average rate for a 30-year, fixed mortgage is a full percentage point lower.
Still, potential buyers who are wary of possible economic issues seem to be looking at other options outside of purchasing a new or existing home. For example, those who don’t feel completely confident with the market might feel like adding on to their current home is a safer option for expansion as compared to purchasing a new, larger home.
While homebuyers in the U.S. now have lower mortgage rates available to them, these decreased rates point to economic uncertainties that have made potential buyers more careful about real estate purchases. Decreased competition going into the fall season has meant that buyers have more options to choose from and sellers can no longer expect bidding wars for their properties.