US Housing Market Shift: Bidding Wars Drop to Lowest Level Since 2020

The US housing market is experiencing a significant shift, with the prevalence of bidding wars declining for the sixth consecutive month to its lowest level since the initial pandemic lockdowns. As of July 2022, only 44.3% of home offers faced competition, a sharp drop from 63.8% a year prior. This cooling trend, driven by rising mortgage rates and high home prices, is granting remaining buyers increased options and stronger negotiating power, a marked change from the frenzied market of the past two years.

What Is Causing the Decline in Bidding Wars?

The primary drivers of this market cooldown are economic pressures impacting buyer affordability. Higher mortgage rates, a response by the Federal Reserve to combat inflation, have significantly increased monthly payments for prospective homeowners. Concurrently, sustained high home prices have pushed a considerable number of house hunters out of the market entirely. This reduction in demand means properties are staying on the market longer, alleviating the intense housing shortage and shifting leverage toward buyers. As a result, nearly 8% of listings now see price reductions each week, the highest share on record.

How Has Buyer Behavior Changed?

The change in market dynamics is directly influencing how buyers approach their search. According to real estate agent assessments, the sense of urgency has evaporated. Buyers are now more selective, taking multiple days to schedule tours instead of rushing to see a property immediately. Offers are becoming more conservative, with some agents reporting they haven't written an offer above the asking price in a month. This contrasts starkly with the pandemic peak, when buyers frequently submitted dozens of offers, often for tens of thousands of dollars over the list price, just to secure a home.

Which Markets Are Seeing the Biggest Changes?

The decline in competition is not uniform across the United States. Markets that were among the hottest during the pandemic, having attracted scores of out-of-town buyers, are now seeing the most dramatic slowdowns.

Metropolitan areas like Phoenix, Austin, and Nashville now have among the lowest rates of competition, all below 34%. Conversely, markets like Raleigh, NC (63.8%) and Honolulu (63%) still maintain relatively high levels of buyer competition, though still down from their peaks.

What Does This New Market Mean for Sellers?

For sellers, the rules of the game have changed. To succeed in a market that is no longer heavily favoring sellers, properties must be move-in ready and competitively priced. Real estate professionals advise sellers to invest in minor updates and ensure their home is pristine. Fixing faulty faucets, applying a fresh coat of paint, and addressing any noticeable issues are now critical to attracting buyers who have the luxury of being choosy. Overpricing a home is a significant risk, as it will likely lead to the property languishing on the market and ultimately requiring a price cut.

The current housing market requires adjusted expectations from both buyers and sellers. Buyers now have more time to make decisions and room to negotiate, but they must contend with higher borrowing costs. Sellers need to prioritize their home's condition and listing price to attract serious offers. For those who can afford today's prices and rates, the reduction in frantic competition may present a welcomed opportunity to purchase a home more deliberately.