This year’s housing market has been nothing if not unpredictable. In less than 12 months, the market has lurched from red hot to ice cold.
So you cannot blame buyers and sellers for feeling a lot of confusion. Should buyers wait for prices to drop? Do sellers really need to keep lowering their asking price, or can they leave it high and hope for a bidding war?
Fortunately, these questions have some clear answers — and knowing the truth might help reduce financial stress regardless of which side of the transaction you are on.
In early November, Zillow surveyed real estate agents to determine the most common misconceptions both buyers and sellers have about today’s housing market.
Following are some hard truths about the housing market that buyers and sellers need to know.
Home prices are unlikely to fall significantly
If you’ve been putting off buying a house because you’re hoping prices are on the verge of plummeting, don’t hold your breath.
Zillow predicts that while the housing market will start to stabilize, prices are unlikely to drop significantly. Instead, Zillow’s forecast predicts next September’s prices to be 1.3% higher in September 2023 than they were in September 2022.
It’s worth noting that other forecasts predict a bigger drop between 2022 and 2024. Morgan Stanley, for instance, believes prices could decrease by as much as 10% through 2024.
Bidding wars are over
In recent years, bidding wars — where at least two buyers are submitting competing offers on one home — have become the norm.
In September 2020, more than 20% of all homes sold across the U.S. went for more than the asking price, Zillow says. However, now that the housing market has started to cool, bidding wars are more of an exception than the rule.
Sellers haven’t adjusted their expectations accordingly, however. Among real estate agents Zillow surveyed, 81% say sellers still expect a bidding war. The cold, hard truth is quite the opposite.
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Shoppers must separate wants from needs
According to Zillow, 28% of agents surveyed say first-time buyers have a hard time distinguishing between what they want in a future home versus what they need.
When it comes to buying a home, some features are crucial. Most people need a functional kitchen, for instance, and large families can’t really compromise on houses with just a bedroom or two.
On the other hand, a master bedroom with an attached bathroom is nice, but it qualifies as more of a “want” than a “need.”
If you aren’t finding any houses that meet your high criteria, it’s time to start re-evaluating your expectations.
Pro tip: If you are planning to buy a home, try to crush your debts as soon as you can. Lower debt levels can translate to a higher credit score, which in turn can get you a better mortgage rate when you apply for a loan.
Sellers must price homes appropriately
A full 79% of real estate agents surveyed by Zillow say it's common for sellers to expect to price their home above market value. Two years ago, that expectation was likely justified. But it emphatically isn’t true anymore.
The majority of real estate agents who responded to Zillow’s survey said buyers are spending more time evaluating a home before placing a bid instead of frantically bidding on a property the second it hits the market.
Waiting to make a purchase might not pay off
More than one-third of real estate agents surveyed by Zillow say potential buyers are making the mistake of waiting for mortgage rates to drop before purchasing.
Yes, the market is more buyer-friendly than it was in 2020 and 2021. But that doesn’t mean 2022’s housing market has swung overwhelmingly in favor of buyers.
Even though bidding wars are mostly a thing of the past, low inventory in many markets means sellers are far from desperate to dump homes at any price.
Also, if mortgage rates do drop, it doesn’t necessarily mean buyers will get a better deal. After all, lower rates mean more buyers will be able to afford houses — and the increased competition could make securing a house more challenging.
Whether you plan to buy or sell a house, following last year’s trends is unlikely to be helpful. The market has changed dramatically this year, and both buyers and sellers need to move with the times.
If you are a seller, pricing your home appropriately is crucial. If you are a buyer, waiting for a bargain might not pay off. You might be better off buying today, even if you have to find an extra source of income to come up with a down payment.
Understanding and accepting the truths of today’s housing market can improve the odds of success for both buyers and sellers.
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