When Larry Frum listed his townhouse in Laurel, Md., this past August, his real estate agent assured him it would sell in three or four days. But that’s not what happened for the communications professional, who needed to relocate to Seattle by the end of September for a new job.
“Three to four days became a week, and then it became two weeks, and then it became a month,” he says. At two months, Frum reduced the price by $20,000.
Such a move would’ve been unusual only weeks earlier. In July, the average home in Frum’s area was selling for over asking in about 12 days. He’d entered the market, it turns out, during the final gasp of the nationwide seller’s bonanza that finally stalled once interest rates started to climb. By the time Frum’s townhouse was for sale, they’d risen from the historic lows of a couple years prior to about 5 percent. In October, they hit 7 percent, or more than double what they’d been at the beginning of 2022, putting mortgage payments out of reach for many buyers.
As a result, the rhythms of buying and selling have significantly slowed. For sellers who, a year ago, watched their neighbors field multiple, contingency-free offers, the idea of having to negotiate can be tough to accept. Buyers, meanwhile, may not have to compete, but their money won’t go nearly as far.
In this new, weird housing market, nobody really feels like a winner.
BEING A BUYER
For starters, many buyers have given up, at least temporarily, thanks to soaring rates.
Emma Aarnes and her husband began hunting for a two-bedroom apartment in their Manhattan neighborhood last spring after finding out they were expecting a baby. In June, when the Federal Reserve raised interest rates by the largest amount since 1994, the couple’s search took on more urgency. By July, they’d found an ideal co-op, but the very same day they made an offer, the Fed hiked rates again.
“We were like, okay, we’re stretched as is. And if the interest rates keep going up, our confidence in being able to sell our current apartment [will go] way down,” Aarnes says. The couple decided to pull their offer. “So we are still in our one-bedroom, which we have rearranged so that there is a nursery for our incoming arrival.”
For buyers still in the hunt despite the rates, the decreased competition means they can actually negotiate and take a night (or two or three) to consider their purchase. “They don’t have to make a buying decision within a couple of hours, which is what it was like a year ago,” says Seth Neal, an agent with Silvercreek Realty Group in Boise. What’s more, they can conduct a proper home inspection; there’s no pressure to waive appraisal or financing contingencies either.
Offers using nonconventional financing, such as Federal Housing Administration and Veterans Affairs loans, or first-time home buyer assistance programs, now stand a chance in a way they didn’t during the buying frenzy (when sellers had their pick of all-cash offers or offers with conventional financing).
Nonetheless, buyers must still contend with high prices because sellers have one major bargaining chip left: The number of homes for sale remains excruciatingly low. The same economic uncertainty keeping a lot of buyers on the sidelines is also discouraging many would-be sellers from listing. The scarce supply of houses on the market is the reason that prices haven’t declined more dramatically. (Fannie Mae predicts an average home price decline of 1.5 percent in 2023).
One additional twist for buyers: Even with 7 percent interest rates, some are finding that renting isn’t any better. As of August, rents nationally had risen more than 12 percent over the past year, according to data from Zillow.
Middle-school teacher Binh Thai started looking to buy after his Brooklyn landlord raised his rent last summer by nearly 80 percent, from $3,100 a month to $5,500. When Thai began his search in August, lenders were quoting him rates of 4.9 percent. Now that he’s found a place, he’s looking at nearly 6.9 percent. But that monthly payment still comes out to less than his new rent.
“I have had moments where I was like, ‘Am I making a mistake?’ ” he says. “Ultimately, this is my one opportunity. I’ve always wanted to own a home. With a teacher’s salary, it’s been really challenging.”
BEING A SELLER
Sellers today have to hustle to make deals happen. “Listing agents and sellers are having to work a lot harder than they did in the last couple of years,” says Erika Levack, an agent with Compass in Austin.
Sellers are now assisting with closing costs and offering to make repairs. Many are helping their buyers cover the cost of “buying down” their mortgage rates (when you pay a fee at closing to knock down the rate).
Peter Anderson is getting ready to sell his home in Coeur D’Alene, Idaho. “We needed a new roof, which we went and did this summer, and we had to buy a new heat pump in the spring,” he says. “A year ago, we probably could have sold the house as-is and not had to do that.”
Levack worked with buyers who put contracts on new-construction homes last December, when rates were about 3 percent. The buyers who didn’t pay extra to lock in those rates long-term are now looking at monthly payments that may be unaffordable.
For one set of clients, Levack says she approached the builder to say her buyers would have to back out “unless you guys do something.” In return, the builder gave them $46,000 to buy down their rate. A year or two ago, Levack says the reaction would’ve been more along the lines of: ” ‘Fine, walk away. We’re going to sell this house for more money anyway.’ And now they are struggling to move their inventory and they’re offering all kinds of incentives.”
Some sellers have started advertising these sweeteners right out of the gate, including offers to help with closing costs in the listings themselves. Others need more convincing.
“I’ve seen a lot of people who have listed a little high based on prices from the summer, early spring, and [the listings are] just kind of sitting there,” says Mackenzie Grate, an agent with the Machree Group in New York. “They’re not quite willing to accept that the market has shifted.”
Levack has been warning sellers that the market is changing every few weeks. To arrive at a realistic listing price, she says, “We have to look at the data very closely.” What it reveals can be painful.
Levack currently has a listing in Austin with the same floor plan and finishes of a nearby home that sold for over $1 million last November. “We are in contract [for] way below that, and that’s just the nature of where things are,” she says.
Larry Frum, the Maryland seller who listed in August so he could move for a new job, finally got an offer on his townhouse in October. As part of the terms, Frum will have to pay the buyer’s closing costs.
When he gets to Seattle, he plans to rent.
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