Could this be the moment for sidelined buyers?
As the real estate market moves into what has traditionally been the slowest time of year for sales, buyers across the country are continuing to see price cuts and lower interest rates that could make homes more affordable than they’ve been in months.
“A growing segment of homes that aren’t competitively priced or well marketed are lingering on the market,’’ says Zillow® Chief Economist Skylar Olsen. “Sellers are increasingly cutting prices to entice buyers struggling with affordability.” Meanwhile, “lower mortgage rates have improved affordability significantly for home buyers, and competition among them could extend into the fall instead of fading away as is typical at this time of year,’’ she says.
The combination of new listings and homes that have lingered for any number of reasons means that buyers have more choices than they have in the recent past just as the Federal Reserve cut interest rates to the lowest they’ve been in more than 18 months.
The good news for buyers, however, comes with a note of caution: As conditions improve for buyers, more shoppers are likely to be drawn into the market, which could heat things up again. For now, though, there could be more affordable opportunities for prepared buyers who have worked out their budgets and are prepared to make an offer if they find the right home.
Metros with the largest shares of price cuts
Nationally, 26% of listings had a price cut as of August 31, 2024, up 2.5 percentage points from a year earlier. In some metros, the share of sellers lowering their sales price is even larger: Denver leads the nation with price cuts, with nearly 36% of listings undergoing a price adjustment, followed by Tampa, Dallas, Nashville, Raleigh, Salt Lake City, Indianapolis and Phoenix. At least a third of listings in those metros had price cuts.
On the flip side, a third of homes (33.4%) nationally sold above their list price in August, a sign that competition among buyers remains strong in some areas and that perhaps savvy sellers are pricing their homes strategically to attract maximum eyeballs. Still, the share of homes selling above list price is down 5.6 percentage points from a year ago and 2 percentage points lower than July, when buyers and sellers nationally finally found themselves on equal footing.
Share of listings with price cuts
Share of price cuts among the lowest priced homes
One surprising finding of Zillow’s price cut analysis is the share of “starter homes” with lowered prices. A starter home typically has one to two bedrooms with one bathroom and roughly 750 to 1,250 square feet of space.
The homes — which fall into the lowest third of home prices — allow buyers to build equity that can be tapped if the owner wants to trade up to a larger home as circumstances and needs change. In August 2024, the typical starter home in the U.S. was valued at $191,903. That’s about 47% less than a typical U.S. home, valued at $362,143.
The lower price point usually makes starters the most sought after of homes on the market. But they’re apparently not immune to slackening demand: A Zillow analysis of the nation’s top 20 metros shows a large share of price cuts even in cities where demand remains high.
Cities with the largest share of starter homes with price cuts are Dallas (36.3%), Denver (35.4%), Atlanta (34.8%), Tampa (34.3%) and Phoenix (33.6%)
Price cuts on starter homes
What to know about price cuts
A sellers may cut the price of a home for any number of reasons:
- Increased competition. When listings pile up, sellers cut prices to entice buyers.
- Slackening demand among buyers. Elevated mortgage interest rates along with higher home prices have made homes more unaffordable for increasing numbers of buyers.
- Not enough sold homes to compare to. After several years of low inventory and high demand, sellers and their agents are still calibrating prices.
- Seasonal demand. Real estate is a seasonal business, with traditionally more activity in the Spring and a slowdown in the Fall. Interest rates also appear to drive activity, with a bump up when rates drop and a calming when they rise.
- The property may be unique. If the home has unusual features that aren’t in demand, the buyer pool could be reduced
- Needs work or repairs. While cosmetic fixers tend to attract buyers, homes in bad shape or in need of extensive and expensive repairs can scare off buyers unless the price point makes it worthwhile.
- It was initially priced too high and developed a stigma. For reasons that can seem unfair, some homes develop a stigma if they’ve been on the market too long. It may be that a series of buyers made offers but couldn’t obtain financing, but shoppers wouldn’t necessarily know that. Instead, they see that the house hasn’t sold quickly and assume there’s something wrong with it.
Real estate agents are experts on local conditions, and have been inside more homes than most of us will step inside during our lifetime. Your agent should be able to tell when a home is priced too high, and can help craft a strategic offer that aligns better with the market and what buyers might be willing to pay for it.
How long will price cuts last?
That’s a hard question to answer since it depends on supply and demand, and what buyers can afford in any market given current interest rates.
If there are fewer homes than buyers, sellers are likely to have the upper hand and price cuts are probably going to be less common. If buyers peel off because interest rates have increased to the point where it outstrips their monthly budget, sellers who want or need to sell more quickly may cut prices to meet buyers where they’re at.
Nationally, Zillow’s Market Heat Index shows the U.S. is currently in a neutral market that favors neither buyers nor sellers. For the past two years, sellers had the edge nationally. How long that “neutral” market lasts is anyone’s guess. Olsen cautions that significantly lower mortgage interest rates that stay below 6.5% could attract buyers who have been waiting for costs to come down.
Are home prices dropping?
Home prices aren’t coming down, but the lower mortgage rates are making monthly payments more affordable.
“Nationwide, the monthly payment on a typical home purchase has fallen by more than $100 since a peak in May,” says Olsen. “That drop is more than $300 a month in the ultra expensive San Francisco metro area.”
For example, a buyer shopping for a typical U.S. home valued at $360,000 would pay $1,916 monthly in principal and interest if they put down 20% and took out a 30-year, fixed-rate mortgage at 7%. If the rate dropped to 6.5%, the monthly payment would drop to $1,820 — a $96 savings.
If the rate dropped further, to 6%, the monthly payment on that $360,000 home under the same scenario would be $1,727 — a $189 savings than if the mortgage rate was 1 point higher. If the buyer was comfortable paying the higher monthly amount, the lower rate would allow them to spend more on a home.
Lower rates also increase the choices available to buyers by making it easier for buyers to qualify for a mortgage on more homes, says Olsen.
The bigger picture: Shoppers have more choice
Buyers today also have more options going into fall: inventory is up in all but 14 of the 50 major metros tracked by Zillow. And things could continue to improve if more sellers are drawn into the market.
Top metros with a year-over-year increase in inventory
Inventory in some markets, however, was lower in August than it was a month earlier, which could make for a harder search in markets where inventory was already low.
Metros with a month-to-month drop in inventory
The takeaway
If you’re ready or need to move, keep your eyes on interest rates and how they change your affordability picture. If you’re seriously in the hunt, an agent can help guide you to homes that fit your wants and needs, and help you determine whether that house you’ve been eyeing with the price cut is a good deal. Meanwhile, you can use Zillow’s BuyAbility tool to see how mortgage rates and your personal financial situation affect the amount of your monthly mortgage payment.
“Markets are not yet more competitive,’’ Olsen says. “This is a moment for those who have been waiting for lower rates and more affordable options. There’s no guarantee that the rates will stay low.”