Spring is typically the busiest time of year for home sales in the United States, as families look to move before the start of the new school year and the weather is right, even in cold-weather states.
The real estate market has been anything but routine in recent years, partly due to high mortgage rates and low real estate inventory. Analysts are betting on the possibility that this spring’s outlook will offer a return to relative normality. As Matt Vernon, head of consumer credit at Bank of America, says, there will be “both opportunities and challenges in the upcoming spring season.”
Here’s what both buyers and sellers can expect if they enter the market in the coming months.
Spring domestic market curves
The differences from this year’s home buying season begin with its likely timing. The factors point to a late start to the season. While May is the month when sellers typically get the best bang for their buck, a report from listing site Zillow found that the best time to sell a home (and to go over the asking price) has moved later in the year. season, in June.
The interest rate environment could slow things down further in early spring. High interest rates have been a major drag on the market, but the expected arrival of relief – some analysts expect the Federal Reserve to cut the federal funds rate in mid-June – could spark an early summer surge in listings. homes by sellers who have been discouraged from moving with high rates.
Then there’s the possible impact of a recent legal settlement that could change how real estate agents get paid and by whom: the buyer or the seller. While there is uncertainty about the effects and exact timing of the changes, they could occur as early as July, which could potentially affect some timing decisions for buyers and sellers entering the market in June or later.
Plus, there’s the bigger challenge of covering home insurance costs, whose sharp rise over the past year makes them a bigger factor than before in housing affordability.
Here’s more information about each of the factors above and what they might mean for you if you’re ready to buy or sell a home this spring or summer.
Mortgage rates are expected to fall
The outlook for the cost of borrowing to buy a home this season is mostly positive. Mortgage rates have already fallen from the October 2023 high of 7.79%, and rates were about a percentage point lower in early April. Even though today’s rates are higher than a year ago, the gap is narrowing.
These lower rates mean the monthly cost of financing a home is lower than it was just a few months ago. Furthermore, if the Fed were to cut rates in June – as some analysts expect – the cost of mortgages could fall. This could encourage buyers and sellers who have been forced to move due to the high financing costs of their new home.
The downside is that if lower rates (and financing costs) actually attract more buyers to the market, that could increase competition and drive prices higher. Flexibility and financial preparedness, Vernon says, are “indispensable” to successfully navigate a competitive real estate market.
House prices will increase, but to a lesser extent
While home price trends naturally vary by city and even neighborhood, prices are generally higher than during the pandemic, even in cities whose markets are experiencing a cooling.
The good news is that the rate of price increases appears to be slowing. The average listing price in February was $415,500, an increase of just 0.3% from February 2023, according to data from listing site Realtor.com.
There has also been an apparent increase in sellers’ willingness to offer price reductions. According to Realtor.com, more than 14% of available homes had their list price reduced in February. This is the highest rate since 2019 and a sign that more sellers are now open to negotiating to finalize a sale.
That said, prices tend to increase as spring approaches, due to home sellers anticipating the seasonal increase in demand. So even if prices are stabilizing overall, buyers in highly competitive markets could find themselves in bidding wars that push prices higher – and worsen affordability.
Inventory will increase
After years of dealing with supply shortages, determined buyers may finally have more properties to choose from. According to year-over-year data from listings site Zillow, new listings increased 21% in February, while total inventory increased 12%.
Data from Redfin and Realtor.com, while less robust than Zillow’s, also point to double-digit supply increases. The trend can be especially helpful for first-time homebuyers. Some cities have seen a significant increase in the number of homes for sale under $350,000.
In short, it seems like more and more homeowners are deciding to sell this year. In turn, increased supply could improve homebuyer selection and provide a check on rising home prices.
“We are starting to see a modest recovery. . . in the real estate business,” says Orphe Divounguy, senior macroeconomist at Zillow. He adds that the presence of more homes on the market “is a good omen[s] good” for the real estate market in general.
These encouraging trends for buyers are contrasted by the scarcity of properties currently on the market. Even a large increase in inventory will not be enough to make up for a supply deficit that existed before the pandemic, worsened during the buying frenzy of 2021 and 2022 and was further exacerbated by sellers whose relocation plans were hampered by high costs of mortgage their next home.
The bottom line: Buyers who find the right home at the right price shouldn’t delay long before making a move.
Home insurance will cost more
Anyone getting a mortgage must have homeowner’s insurance – the mortgage lender requires it. This year, the cost of premiums is likely to play a bigger role than usual in affordability, because rates are rising by double-digit percentages in 2023.
What’s worse is that today’s high rates can’t be relied on to stay where they are. Experts predict another increase of 10% to 15% this year. That means prospective buyers will have to factor rising insurance costs into their determination of how much home they can afford to buy this spring.
According to Travis Hodges, CEO of digital insurance brokerage VIU by HUB, nearly 80% of homebuyers include insurance costs in their mortgage. Including insurance payments in your home loan means that your monthly payments will increase whenever your premiums go up.
Hodges says buyers can “take more ownership” in the insurance process by shopping around and getting insurance cost estimates to get a full picture of how much money will be needed to finance a home.
Agent commissions will change
This means there will be greater transparency into how and by whom agent commissions are paid. While commissions have always been negotiable, the seller typically pays 5% to 6% of the sales price, split between their agent and the buyer’s agent. Now, sellers may be more willing to negotiate the commission they pay to sell their home, with their agent and the buyer’s agent.
Sellers can choose to continue offering a split commission and pay the full commission, offer a reduced commission, or choose not to pay buyer agent commissions. The latter means the home buyer may have to pay their agent out of pocket, negotiate the price of the home to account for the change, or take some other action.
The requirement for buyer agreements won’t become official until the agreement goes into effect, which is expected until at least mid-July. However, that timing could mean that changes loom around the peak sales period of late spring and early summer. In fact, some real estate agents already have them in place.
The result: The impact of the new rules on today’s real estate market is that they bring “a lot of confusion and frustration to buyers. . . at a time when the market is already highly competitive,” says Bianca D’Alessio, founder of the Masters Division of Nest Seekers International.
While the deal is creating a period of uncertainty, there is also a window of opportunity. Buyers and sellers, D’Alessio says, should “seize the opportunities available in the current market rather than wait for the new rules to come into force.”
Buyers have come under intense pressure over the past two years due to rising mortgage rates and shrinking inventory. This spring and summer, the process of buying a new home or selling your current property will be no less stressful, given the unusual degree of market uncertainty. But market participants who are financially savvy and do their homework should be able to take advantage of the opportunity to buy or sell when it presents itself.
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