The proportion of home sellers offering concessions to close a deal has skyrocketed in the last three months of 2022, a new report has found. That was before sellers started lowering their asking price to attract buyers.
About 42% of homes sold in the fourth quarter offered purchase incentives, according to Redfin data, up from just over 30% in both the previous quarter and fourth quarter of 2021. Those concessions included mortgage rate buybacks, cash for repairs or closing costs, and warranties on appliances. The incentives were more commonly found in pandemic boomtown markets.
For homebuyers, these concessions helped offset higher borrowing costs in part, and experts expect these incentives will continue into 2023.
“Concessions have made a comeback as rising mortgage rates, inflation and economic uncertainty have dampened demand for home purchases,” the report said, “giving buyers who stay in the market increased bargaining power.”
(Image credit: Redfin)
Buyers gain bargaining power
Last year, as mortgage rates posted their fastest rise in 50 years, buyers fled to the sidelines, causing pending sales and completed sales to fall more than 30% year over year. However, the remaining buyers gained newfound 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 below-list price. Another record 19% included both a concession and a price drop that took place while the house was still on the market. A record 11% included all three, the report said.
“Buyers are asking sellers about things that have never been heard of in recent years,” said Van Welborn, a Redfin real estate agent in Phoenix, in the report. “They feel empowered, in part because their offer is often the only one, and in part because they know sellers are building up so much equity during the pandemic that they can afford to make significant concessions.”
The story goes on
They weren’t the only ones using incentives to lure buyers. According to the National Association of Home Builders, 62% of home builders used concessions to boost sales, including offering mortgage rate buybacks, paying points, and offering price reductions.
“In this environment of high inflation and high mortgage rates, homebuilders are struggling to keep housing affordable for homebuyers,” NAHB Chairman Jerry Konter, a builder and developer from Savannah, Ga., said in the release.
Concessions popular in pandemic boomtowns
Some of the most popular cities during the pandemic saw the biggest annual spikes in buyer concessions, Redfin data showed.
Phoenix saw the biggest jump in the fourth quarter, with its concession share up 29.7 percentage points year over year. It was followed by Seattle (up 25.6 ppt), Las Vegas (up 22.2 ppt), San Diego (up 20.7 ppt) and Detroit (up 20.4 ppt).
Overall, buyers in San Diego were offered the most concessions, with 73% of sellers providing at least one buyer incentive, followed by Phoenix (62.9%), Portland, OR (61.6%), Las Vegas (61.3%), and Denver (58.45%). %).
“There’s an opportunistic mode of buying for some borrowers out there, and homebuyer interest should continue to rise as we get closer to spring,” Keith Gumbinger, vice president of HSH.com, told Yahoo Finance. “We’ll see if mortgage rates change or if prices go down. One thing is for sure – homebuyers are adaptable.”
Real estate agent Steve Bremis (L) speaks with home seekers Makayla Gavitt (C) and David Harris during an open house at a condo in Somerville, Massachusetts. (Credit: Brian Snyder, Portal)
Will buyer concessions remain?
As mortgage rates remain high and affordability remains a key concern, economists expect slower market conditions to continue into 2023 — tipping the balance in favor of buyers.
According to Danielle Hale, chief economist at Realtor.com, the share of buyer concessions “has been growing since late summer 2022,” around the time home prices were peaking. Since then, home sellers have had to either adjust their price expectations or offer incentives to close a deal.
Gumbinger noted that housing market activity could pick up in the spring, but economic headwinds will likely push homebuilders 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 for concessions and negotiating a price.”
“The real silver lining in 2023 is that there will be more options,” Hale told Yahoo Finance. “Houses will take longer to sell and we will see more of them on the market compared to 2022 or 2021. Shoppers have a little more time to make decisions that don’t feel as rushed as they might have made in recent years.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.
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