The share of home sellers offering concessions to get a deal jumped in the last three months of 2022, according to a new report. This was before sellers resorted to lowering their listing price to entice buyers.
About 42% of homes sold in the fourth quarter offered incentives to buyers, according to Redfin data, compared to just over 30% in the previous quarter and the fourth quarter of 2021. These concessions included mortgage rate buyouts, cash for repairs or shutdowns costs and warranties on appliances. Incentives were more common in pandemic markets in booming cities.
For homebuyers, these concessions have partially helped offset rising borrowing costs, and experts expect these incentives to continue into 2023.
“Concessions have returned as rising mortgage rates, inflation and economic uncertainty have dampened demand for home purchases,” the report said, “giving buyers who remain in the market leverage to increased negotiation”.
Buyers gain bargaining power
Last year, as mortgage rates climbed at the fastest rate in 50 years, buyers fled to the sidelines, sending pending sales and closed sales down more than 30% year-on-year. the other. However, the buyers who stayed gained new bargaining power on their side. Some even got a lower price and a concession, Redfin found.
A record 22% of homes sold by Redfin agents in the fourth quarter included both a concession and a final price below the listing price. Another record 19% included both a concession and a price reduction that occurred while the home was still on the market. A record 11% included all three, according to the report.
“Buyers are asking sellers for things that have not been seen in the past few years,” Van Welborn, a Redfin real estate agent in Phoenix, said in the report. “They feel empowered, partly because their offer is often the only one, and partly because they know sellers are building up so much equity during the pandemic that they can afford to make significant concessions.”
They weren’t the only ones using incentives to entice buyers. According to the National Association of Home Builders, 62% of builders have used concessions to drive sales, including offering mortgage rate buyouts, paying points and offering price reductions.
“In this environment of high inflation and high mortgage rates, builders are struggling to keep homes affordable for homebuyers,” said NAHB President Jerry Konter, a builder and developer from Savannah, Georgia, in the press release.
Popular concessions in pandemic boomtowns
Some of the most popular cities during the pandemic have seen the largest annual increases in buyer concessions, according to data from Redfin.
Phoenix saw the biggest jump in the fourth quarter, as the share of dealerships rose 29.7 percentage points from a year earlier. Next come Seattle (up 25.6 points), Las Vegas (up 22.2 points), San Diego (up 20.7 points) and Detroit (up 20.4 points).
Overall, dealerships were most often offered to buyers in San Diego, with 73% of sellers offering at least one incentive to buy, followed by Phoenix (62.9%), Portland, OR (61.6 %), Las Vegas (61.3%) and Denver (58.45%). %).
“There is an opportunistic type of buying for some borrowers, homebuyer interest should continue to increase as we get closer to spring,” Keith Gumbinger, vice president of HSH.com, told Yahoo Finance. . “We’ll see if mortgage rate levels change or if prices go down. One thing is certain, buyers are adaptable.
Will the buyer’s concessions last?
With mortgage rates still high and affordability a major concern, economists expect the slowdown in market conditions to continue into 2023, tipping the balance in favor of buyers.
According to Danielle Hale, chief economist for Realtor.com, buyers’ share of concessions has “increased since late summer 2022,” around the time home prices peaked. Since then, home sellers have had to either adjust their price expectations or offer incentives to close a deal.
Gumbinger noted that activity in the housing market could pick up in the spring, but economic headwinds will likely push builders to offer “price concessions…to support new construction in 2023.”
Bright MLS economists also expect homes to stay on the market longer this year, a sign that buyers are taking their time “asking concessions and negotiating a price.”
“The real silver lining in 2023 is there will be more options,” Hale told Yahoo Finance. “Homes are going to take longer to sell and we’re going to see more on the market compared to 2022 or 2021. Buyers have a bit more time to make decisions that won’t feel as rushed as they might have done in the past two years.
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.
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