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The honeymoon is over for the real estate market.
After years of steady growth, United States housing prices peaked during the fourth quarter of 2022. Since then, homeowners trying to sell have faced a completely different game, plagued by fewer offers, more time on the market, and lower selling prices.
That’s the takeaway from a new Clever Real Estate report, which found that 53% of recent home sellers dropped their asking price.
The company, which matches home buyers and sellers with agents, sought to examine how much the market has changed for sellers, surveying 1,000 Americans who sold a home in 2022 and 2023.
Clever’s report underscores how recent increases in mortgage rates have sparked a serious market setback for those looking to sell.
Diminishing Profits
According to the Federal Reserve, the housing market peaked in 2022, with the average home selling for $479,500 during the fourth quarter. By the second quarter of 2023, the median sale price dropped to $418,500. This marks the most significant decline since the Great Recession.
Sellers have naturally been disappointed by the drop in market value. In fact, one in eight recent sellers told Clever they lost money on their sale.
Coming in at the end of the market boom, recent sellers had different expectations for the process. They expected bidding wars for their homes, with 59% anticipating more buyer competition. With that in mind, 45% say they rejected an offer on their home, hoping to get a better one, only to settle for a lower price from another buyer.
Around 33% of home sellers say they wished they’d priced their houses differently. This increased to 50% for sellers who tried to save on fees by selling their homes without a real estate agent.
Those disappointments left a mark on sellers. The study found that 86% regret some part of their home sale.
Selling With Regret
Home sellers had varying reasons for regretting their home sales, but most related to the cooling housing market. According to the survey, 23% of recent sellers said the transaction took longer than expected. In addition, 23% wish they had waited until the market was better, and 20% feel they waited too long to sell, missing the boom of 2020 to 2022.
All of these regrets stem from low buyer demand. With interest rates hitting a 20-year high this year, it’s no surprise people aren’t eager to get a mortgage. The Fed reports the average interest rate for a 30-year fixed mortgage reached 7.8% in November — up from 2.7% in early 2021.
“Elevated interest rates clearly dented both housing demand and supply this year, and 2023 will likely go down as one of the slowest years for existing home sales since the mid-90s,” says Alex Thomas, senior research analyst at John Burns Research & Consulting, which provides independent research and consulting services related to the housing industry. “Many millions of households that may have been able to buy at 3-4% rates are priced out at 7-8% rates.”
Thomas said that with homeowners wanting to hold onto their lower mortgage rates, they are more willing to settle for what they have now and wait for a more favorable market to buy something new.
That’s consistent with Clever’s finding that 51% of recent sellers hesitated to sell their homes because they didn’t want to give up the low interest rate on their mortgage.
Although most buyers who sold their homes still profited from the sale, the tense nature of such a significant transaction had other costs. About 56% of sellers said their experience was stressful, and 42% said they fought with loved ones during the process.
A Market in Flux
While the housing market may have been bleak in 2023, there is room for sellers to have cautious hope in 2024.
Interest rates have started to dip since reaching a high in early November. Thomas said that even this drop of 0.5% could offer an incentive to buyers, increasing the demand in the market. So, while December and January are historically slow times for the real estate market, the U.S. could see some growth.
“The most important metric to pay attention to in your market in 2024 is listings,” Thomas explains. “We’re seeing listings rise unseasonably in some markets across the country right now.”
To be more competitive in today’s market, Thomas said sellers might want to reduce their asking price sooner rather than later if they live in an area with new construction. Builders can offer incentives, such as buy-downs, that drastically lower monthly payments, which might encourage a buyer to purchase a new build instead of a previously owned home.
If a homeowner finds themselves with an urgent need to sell — if, for example, they accepted a job offer on the other side of the country — they might consider selling their home as-is to a company that buys for cash instead of waiting on the market to turn around.
Although interest rates may improve, it doesn’t mean sellers should race to list their homes. Thomas said he expects many homeowners to “cling” to their low interest rate in 2024, rather than risk a buy and sell.
This article was produced by Media Decision and syndicated by Wealth of Geeks.