December chill could thaw out by spring for a ‘boring’ year
If mortgage rates continue to decline, we could see a more normal spring selling season, according to a Zillow economist.
- Home sales are starting to climb up, suggesting a more typical spring.
- The percentage of homes sold above list price dropped to the lowest level since 2020, a sign that buyers and sellers are more accurately gauging the market.
- Zillow’s December report estimates some markets are seeing year-over-year price declines.
One sign that the real estate market was unsustainably overheated in recent years was the large number of homes that sold for above the list price. The frenzy of bidding wars and multiple offers over asking may now be giving way to a "boring" — and more predictable — year ahead.
The latest monthly housing report from Zillow found that the share of homes sold above list price fell to just under 28% in December. That's the lowest rate since June 2020, a time when the world was coming out of the most restrictive pandemic shutdowns.
Redfin reported similar findings, putting the share of homes selling above list price at 23% in December. By comparison, the share approached 60% at times last spring, according to Redfin data.
Sellers also seem to be adjusting. In October the percentage of homes with price reductions was around 23%; by December it was down to 14.6%, according to Redfin.
With sale prices now landing closer to the list price, it appears that active buyers and sellers are adapting to the current market, which could mean a less chaotic spring season is coming.
"The housing market ended 2022 in a deep freeze, but there are some green shoots pushing up," said Jeff Tucker, senior economist at Zillow. "The recent thaw in mortgage rates has begun to attract some renewed interest from buyers, and home sales are climbing again compared to last year. If rates continue to march down this spring and sellers return in seasonal force, the housing market just might get to have a normal — maybe even boring — year."
Another indicator of a more typical year ahead? The increase in days on market. In December, it took about 30 days to sell a home, up from 13 days in December 2021. Homes are still selling more quickly than they were in the pre-pandemic days of December 2019, when it took about 43 days for a house to sell, but buyers are getting some breathing room.
Tucker expects that days on market will drop down a bit from current levels, something that traditionally happens in the spring. He also expects sellers to be rolling out higher prices if they see the demand is back.
"I think sellers are cautiously optimistic that they can fetch a higher price this spring and that will bring out some more aggressive pricing," Tucker said in an email. "A lot of sellers know the spring is the best time to sell, and so they've waited for this opportunity to get the best price when they sell.
Historically, he said the share of homes sold above list price bottoms out in early February before bidding wars ramp up by March.
"I expect something like that to play out this spring, and the main difference will likely just be a smaller ramp up in above-list sales — that is, some improvement for sellers compared to the current midwinter doldrums, but much less of a seller's market than we saw in spring 2021 or 2022," Tucker said.
Indeed, homes in the hottest markets in 2021 are now taking the longest to sell. That's particularly true in western metros: In Austin, homes are selling in 68 days; Las Vegas is at 57 days, and Phoenix comes in at 55 days, according to the Zillow report. On the flip side, the most affordable markets have now become the hottest, with homes in the Hartford, Cincinnati, Kansas City and Columbus markets selling in two weeks or less.
The slowdown in days on market has come with cooling prices. Zillow estimates prices dropped 0.2% between November and December. Year-over-year, prices were up 8.4%, although the report noted some markets are starting to see year-over-year drops, including Austin (down 4.2%) and San Francisco (down 2%).