Homes selling above ask, but will reluctant sellers list?
It's been nearly a year since the average home sold for more than its list price, but it may not be enough to spark a wave of inventory.
- The average sale-to-list price ratio for much of June was 100.1%, meaning a typical home sold for a fraction over its asking price.
- Even with higher sale prices, elevated interest rates may continue to dissuade sellers from listing.
- A more stable housing market is what’s needed to turn the tide on inventory.
Reluctant sellers may be encouraged to hear that — for the first time in nearly a year — homes are, on average, again starting to sell for above the asking price. But just barely.
According to a new Redfin report analyzing national home sale prices, the average sale-to-list price ratio for the four weeks ending on July 2 was 100.1%.
It's not yet clear if this signals a trend, and while it may be welcome news for sellers, it's unlikely to cause a flood of new inventory, experts told Real Estate News.
A good market to sell in, but not a good one to buy in
The recent uptick in sale prices might be enough to entice some sellers to list, said Redfin Deputy Chief Economist Taylor Marr.
"It can definitely encourage sellers when they realize there's strong demand and limited competition from other sellers," Marr said. "It's sort of the natural feedback loop that tight supply creates strong competition and price pressure and that creates some supply."
But while some sellers may be lured by the prospect of getting offers over their asking price, having a sub-3% mortgage interest rate still largely outweighs the short-term benefits of getting a slightly higher sale price today, Marr added.
"Even though it is a good market to sell in, it's not favorable to buy in," he said. "Giving up that 3-4% mortgage for one that is 6-7% is just a really hard sell."
The inventory shortage has made conditions advantageous for sellers, particularly as price appreciation continues in many metro markets, but that doesn't mean we should expect to see a wave of sellers rushing to list their homes, Marr suggested.
Cash sales up in some metros
Elevated interest rates may be dissuading many sellers and buyers from entering the market, but cash-flush individuals who can purchase a home without taking out a mortgage are going about business as usual. And in some metros, they're having a field day.
In Manhattan, for example, nearly two-thirds of homes purchased in the last quarter were paid for in cash, Jonathan Miller, CEO of the real estate appraisal and consulting firm Miller Samuel, told Real Estate News. "We had the highest market share of cash sales in history," he said, noting that "65.4% of all buyers in the second quarter that closed were cash."
This record has been set three quarters in a row, Miller explained, saying that the ultra high-end housing market has remained relatively unaffected by the skyrocketing mortgage interest rates.
Stability key to inventory, consumer confidence
While cash buyers may be doing just fine, typical consumers — the ones who rely on financing — want to see more stability in the marketplace, Miller said.
And the Federal Reserve's monetary policy will continue to play a meaningful role in the housing market and influence consumer decisions around buying and selling. Despite the June pause on rate hikes, the Fed is likely to roll out further rate hikes in the coming months. And there's virtually no chance of a rate cut this year, Miller said.
But a few months of a pause in hikes or future cuts would help provide the stability Miller said is needed to see inventory tick back up.
Until then, 2023 will continue to be "the year of disappointment," Miller said. As for next year? It'll simply be the year of "getting better," he suggested.