The Homebuyer Bidding Wars Seem To Be Calming Down

Redfin says the homebuyer bidding war seen by its agents has dropped to the lowest rate since January. About 60% of offers written by Redfin agents faced competition in July, down from 65.5% in June.

The rate of 60% in July was a steep fall off from the pandemic high of 74.1% this April but still higher than the 57.9% year-over-year when the housing market was recovering following a shutdown caused by pandemic restrictions.

The brokerage attributed the decline to an increase in housing supply. Increased supply gives buyers more options to choose from, which helps reduce competition and stabilizes prices. But the company also says it’s typical for competition to ease in the summer following the spring homebuying season.

“Competition has started to slow in the last three weeks. We’re now seeing five to eight offers on homes instead of 25, and they’re coming in $5,000 to $10,000 above the listing price instead of $50,000 to $60,000,” said Scott Mercer, a Redfin real estate agent in Sacramento, CA. “Buyers are pushing back. They’ve even started including appraisal contingencies again and making requests for repairs—things that were pretty much unheard-of last year.”

As much of residential real estate is local, Sacramento, with the sixth highest bidding war rate of 47 metro areas in the survey at 72.9%, had a relatively unique factor in its drop—a slowdown in the migration of tech workers.

“Sacramento exploded in popularity among remote workers during the pandemic. People coming from San Francisco were like kids in a candy store here because home prices were so inexpensive in comparison. But we’re no longer seeing as big of an influx of those folks, likely because families can finally travel again and employers are asking people to come back to the office,” Mercer pointed out.

He said if the Covid situation continues to worsen it will be interesting to see if migration to Sacramento rebounds.

Fort Collins, CO had the highest bidding-war rate in July with 77.3% of offers followed by Orlando, FL, at 77%; Nashville, TN, at 74.6%: Honolulu, HI at 74.1; and Colorado Springs, CO at 73.2%.

One factor that will likely keep the market competitive is the high number of investor purchases of homes. In May, Redfin pointed out investor purchases of new homes saw growth for the first time since the pandemic hit. Investments were up 2.7% year over year in the first quarter of 2021.

“Investors are likely starting to feel more comfortable because the economy is in recovery mode,” said Redfin senior economist Sheharyar Bokhari. Another reason Bokhari offered was that the shortage of homes, and the larger number of families renting, is a way to invest cash on hand and then rent out the properties to gain ongoing revenue. “This is likely making the housing shortage even worse, and also means that individual homeowners sometimes end up competing with investors in bidding wars,” Bokhari added.