The share of home sellers offering discounts to close a deal increased in the final three months of 2022, a new report found. That was before sellers resorted to lowering their list prices to attract buyers.
About 42% of homes sold in the fourth quarter offered incentives to the buyer, up from just over 30% both in the previous quarter and in the fourth quarter of 2021, according to Redfin data. costs and warranties for household appliances. Promotions were more common in pandemic boomtown markets.
These incentives for homebuyers have helped partially offset higher borrowing costs, and experts expect these incentives to continue through 2023.
“Recessions, rising mortgage rates, inflation and economic uncertainty have dampened demand for home purchases, giving buyers remaining in the market more negotiating power,” the report said.
Buyers gain negotiating power
Last year, when mortgage rates rose to their fastest level in 50 years, buyers held off sales, sending expected sales down more than 30% for the year. However, the remaining buyers gained new bargaining power on their side. Redfin found that some went for lower prices and concessions.
A record 22% of homes sold by Redfin agents in the fourth quarter included both a rebate and a closing price below list price. Another record 19% includes both a rebate and a price reduction that occurred while the home was still on the market. The report noted that a record 11% covered all three.
“Buyers are asking sellers for things that have been unheard of for the past few years,” Van Welborn, a Redfin real estate agent in Phoenix, said in the report. “They feel empowered because their offer is often the only one, and partly because they know that sellers are raising enough capital during the pandemic to be able to make big concessions.”
They weren’t the only ones using incentives to attract buyers. According to the National Association of Home Builders, 62% of builders have used incentives to increase sales, including lower mortgage rates, payment points and price discounts.
“In this high-inflation, high-mortgage-rate environment, builders are struggling to keep apartments affordable for homebuyers,” NAHB chairman Jerry Konter, a Savannah, Ga.-based home builder and developer, said in a news release.
Discounts popular in pandemic boom towns
Some of the most popular cities saw the biggest year-over-year increases in buyer concessions during the pandemic, according to Redfin data.
Phoenix saw the biggest jump in the fourth quarter, with its share of rebates up 29.7 percentage points from a year earlier. It was followed by Seattle (up 25.6 points), Las Vegas (up 22.2 points), San Diego (up 20.7 points) and Detroit (up 20.4 points).
Overall, incentives were most often offered to buyers in San Diego, with 73% of sellers offering at least one incentive to buyers, followed by Phoenix (62.9%), Portland, OR (61.6%), and Las Vegas (61.3%). and Denver (58.45). %).
“For some borrowers, there’s a type of opportunistic buying going on, and interest from home buyers should continue to pick up as we approach spring,” HSH.com vice president Keith Gumbinger told Yahoo Finance. “We will see mortgage rates change or prices soften. One thing’s for sure – homebuyers can adapt.”
Will buyer concessions continue?
As mortgage rates remain high and affordability remains a major concern, economists expect slower market conditions to continue through 2023 – tipping the balance in favor of buyers.
According to Danielle Hale, chief economist at Realtor.com, the share of buyer rebates “has been increasing since late summer 2022,” when home prices peaked. Since then, home sellers have had to either adjust price expectations or offer incentives to close a deal.
Gumbinger noted that housing market activity may pick up in the spring, but economic headwinds will likely prompt builders to offer “price concessions to support new construction in 2023.”
Economists at Bright MLS also expect homes to stay on the market longer this year, a sign that buyers are spending their time “asking for concessions and negotiating price.”
“The real silver lining in 2023 is that there are more options,” Hale told Yahoo Finance. “Homes will take longer to sell and we’ll see more of them sitting on the market than in 2022 or 2021. Buyers have a little more time to make rash decisions. seen over the past few years.”
Gabriella is a Personal Finance Correspondent at Yahoo Money. Follow him on Twitter @__gabriellacruz.
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