Don’t expect a bidding war if you’re selling your house — homebuyer competition just plunged to the lowest level in over 2 years

According to a new report from real estate brokerage Redfin, 49.9% of home offers from its agents faced competition in June on a seasonally-adjusted basis. That was the lowest bidding-war rate since May 2020, when the COVID-19 outbreak brought the real estate market to a near-dead stop.

To put things in perspective, the bidding war rate was 65.0% in June 2021 and 57.3% in May 2022. So homebuyer competition has come down significantly.

In fact, June marked the fifth straight monthly decline in this metric.

Redfin says there’s less competition in the housing market because “higher mortgage rates, high home prices, inflation, and a falling stock market have eroded homebuyer budgets.”

Let’s take a closer look at these factors.

Higher mortgage rates

Redfin cites Freddie Mac data showing that 30-year mortgage rates in the U.S. are now at 5.51% — substantially higher than the 3.11% at the beginning of this year.

A higher mortgage rate translates to higher monthly payments on a same-sized loan.

Therefore, if you are planning to buy a house, a higher mortgage rate means you might not be able to afford the same house that you were eyeing earlier.

High home prices

Redfin’s latest data suggests that property prices are no longer soaring: in the four-week period ended July 10, the median home sale price in the U.S. declined 0.7% from the peak during the four weeks ended June 19.

That said, at $393,449, the median home sale price still represented a 12% increase year over year. Meanwhile, the median asking price of newly listed homes rose 14% year over year to $397,475.

If you want to buy a home with the median asking price at the current mortgage rate, you’d be looking at a monthly mortgage payment of $2,387. A year ago — when homes were cheaper and mortgage rates were at 2.88% — you’d only need $1,663.

In other words, high home prices combined with higher mortgage rates mean you would need to budget 44% more for monthly payments.

Inflation

And Americans are already facing tight budgets due to inflation.

In June, the consumer price index rose 9.1% from a year ago, marking its fastest increase since November 1981. The index measures the prices for a basket of everyday goods and services related to the cost of living.

Inflation erodes our purchasing power. With consumer prices increasing substantially, people have less money to buy a home.