Shift Towards a Buyer's Real Estate Market: Key Signs and Data for 2022

The U.S. housing market is showing clear signs of a shift in favor of homebuyers, driven by a swift rise in both new listings and price reductions as demand cools from record highs. For the first time in over two years, the share of homes with a price drop has reached a level not seen since October 2019, while the pace of new listings is accelerating. This change, coupled with a significant pullback in buyer demand as measured by mortgage applications and home tours, indicates a market that is becoming more balanced and less feverish. The key takeaway is that while home prices remain at record highs, increased inventory and seller motivation are creating new opportunities for buyers who can manage today's higher mortgage rates.

What Are the Key Indicators of a Cooling Market?

Several leading indicators point to a decisive cooling of buyer demand. According to data from the four-week period ending May 15, 2022, mortgage purchase applications fell 15% year-over-year, reaching their lowest level since May 2020. Concurrently, the Redfin Homebuyer Demand Index, which measures requests for home tours and buying services, posted its largest annual decline since the early pandemic lockdowns of April 2020. This decline in demand is a direct response to soaring homeownership costs; the monthly mortgage payment for the median-priced home has jumped 43% from a year ago to a record $2,447, influenced by mortgage rates that recently touched 5.25%. This data suggests that affordability constraints are sidelining a growing number of potential buyers.

Why Are Sellers Increasingly Reducing Their Prices?

With buyer demand waning, sellers are adjusting their strategies to attract the remaining pool of qualified buyers. The most telling sign is the spike in price reductions. In the past four weeks, 17.8% of homes for sale had a price drop, a significant increase from 12.1% a month earlier and 9.5% a year ago. This is the highest share of price cuts in over two-and-a-half years. Sellers are recognizing that the window of peak demand may be closing. As Redfin Chief Economist Daryl Fairweather noted, "Rising mortgage rates have caused the housing market to shift, and now home sellers are in a hurry to find a buyer before demand weakens further." This urgency is leading to more realistic pricing, benefiting buyers who are actively searching.

Is It Still a Competitive Market for Buyers?

Despite the cooling demand, the market remains highly competitive for desirable, well-priced properties. Homes are selling at a record pace, with a median of just 15 days on market, and a record 57% of homes are still selling above their list price. This indicates that high-quality inventory continues to receive multiple offers quickly. However, the competition is now more concentrated. The market is bifurcating: homes that are priced correctly and in good condition are moving faster than ever, while those that are overpriced or have flaws are sitting longer and requiring price adjustments. This environment requires buyers to be prepared and pre-approved but also allows more room for negotiation on properties that have been on the market for more than two weeks.

For buyers, the current market conditions mean that patience and preparation can pay off. While bidding wars persist on turnkey homes, the growing number of price reductions provides leverage. For sellers, success now depends on strategic initial pricing and a willingness to adjust based on market feedback, a stark contrast to the strategy of pricing low to incite a bidding war that was effective just months ago. Based on our experience assessment, this trend toward a more balanced market is likely to continue through the summer, offering a welcome respite for buyers who have been facing intense competition.