If you were deterred by stiff competition in spring and summer, know that things may look a little different in fall 2022.
Fall tends to be a good time for buyers, and this year could be especially good for buyers sidelined by fierce competition and a shortage of homes over the past two years, according to Zillow economists.
The double whammy of higher mortgage interest rates and climbing home prices has made buying more expensive. The higher costs of buying have thinned the ranks of home shoppers, which has lowered the prices sellers can command, said Zillow’s chief economist, Skylar Olsen.
U.S. home values fell 0.1% from June to July 2022, the first decline in Zillow’s home value metric since 2012, Olsen said. The drop in values over the course of a month showed up in 30 of the 50 largest metro areas, but values in those areas are still up 16% from a year ago.
“Home values flattening so quickly after recent record growth might surprise, but it’s a badly needed rebalancing that gives home buyers more options, more time to shop and more negotiating power,” Olsen said.
That could mean more options to tour and more time to find the right house, and that you’re less likely to face a bidding war, she said.
If you’re in the market for a home, here are six reasons why this fall could be a good time to buy.
1. The number of homes for sale is expected to keep increasing
Though inventory still remains below what it was in 2019, the number of homes for sale has been rising steadily this year, driven in part by homes lingering on the market. In general, this could mean having more options, and potentially competing with fewer buyers when you find a home you fall in love with.
Of course, the level of competition will depend on where you’re searching. Extremely expensive cities and those with the largest run-up in prices over the last two years — San Francisco, Austin, Phoenix and Seattle — have inventory levels closest to where they were in 2019. This means that competition in these housing markets is easing up more quickly than elsewhere in the U.S.
Be mindful that competition in general typically dips in the fall season; shoppers with young children tend to want to settle in before school starts up, so by summer, many families have either already moved or paused their shopping if they have that luxury.
2. The possibility of price cuts on older listings
Fall is traditionally when home shoppers are more likely to score a deal on a home. Listings that have been sitting on the market for weeks or months typically start to see price cuts.
Heading into this fall, the share of homes with price cuts has risen dramatically: nearly 19% of listings across the U.S. have experienced a price cut — the highest level since November 2019. Salt Lake City (32%), Phoenix (29%) and Las Vegas (29%) are seeing the highest shares of listings with price cuts.
3. You could have more time to shop
The number of homes sold also is slowing down, mainly because fewer buyers can afford them, Olsen said. Phoenix, Las Vegas and San Jose saw the largest month-over-month drop in newly pending sales from June to July 2022. The nation’s least expensive cities and surrounding metro areas were among those with the smallest monthly drop in home sales.
“It took 10 days for a listing to go pending in July, two days longer than in June,’’ Olsen said.
The sales slowdown means that buyers have slightly more time to shop, compare and evaluate options, Olsen said.
4. Home price appreciation is easing
After a year of skyrocketing housing prices, the pace of home price growth is slowing. The slowdown is notable given the white-hot market of 2021.
The annual rise in home values — which clocked in at 16% in July — is predicted to drop to 2.4% by July 2023. The typical U.S. home value now stands at $354,165, according to the Zillow Home Value Index.
Mortgage interest rates, which saw a steep run-up mid-year, coupled with the spike in home prices over the past two years, are likely driving the slowdown in price growth, Olsen said.
Demand for the lowest-priced homes is strongest across the board, while price cuts are most common for middle- and high-priced homes, according to an analysis by Zillow economist Nichole Bachaud.
5. Sellers may want to close by year-end
A home is where you live and make memories, but it’s also an investment — one that comes with tax consequences.
A home seller may want to take advantage of a gain or loss during this tax year, so you might find homeowners looking to make deals so they can close before December 31. Ask why the seller is selling, and look for listings that offer incentives to close before the end of the year.
Bonus: end-of-year deals on big-ticket items such as appliances could help cut your move-in costs if the home’s appliances are dated or not included in the sale.
6. Fall weather can reveal flaws you’ll want to know about before you make an offer
Depending on your climate, the fall and winter months tend to reveal a home’s flaws, making them a great time to see a home’s true colors. For instance, in colder months, you’ll be able to tour a home and learn whether the furnace creates heating dead zones. You’ll also be able to see if the house is drafty or if there are structural issues that might otherwise be hidden by bushes or flowers.
It’s better to see the home’s flaws before making the offer, instead of being surprised months after you close. In fact, the best time to do a property inspection is in the rain and snow, because any major issues are more likely to be exposed.
How mortgage interest rates factor in
Interest rates rose sharply in the early part of 2022 and reached 6% by summer. While it’s a sharp jump from pandemic averages, it’s also close to recent historical norms. Rates were closer to 5% as recently as late 2018, and they consistently hovered between 7% and 8% for much of the 1990s. They hit the high teens through much of the 1980s.
Still, the change in interest rates can make a home that was affordable six months ago now fall out of or in the upper range of a shopper’s budget. But higher rates have a somewhat cyclical effect: demand for homes decreases because buying has become more expensive. That reduced demand can, in turn, lead to price cuts on homes, which could potentially put that out-of-budget home back within reach.