Housing market slows down – from downright frothy to just plain hectic

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When Jennifer Pierson and her husband, Matt, decided at the end of May to move back to her hometown of Rochester to be closer to her family, they were expecting to get a host of offers on their Town of Hamburg house – and a tidy profit.

After all, that’s what had been happening to many home sellers for the past few years.

“Just get it on the market, and everyone will come and give you 22 offers. That’s what everyone told us,” said Pierson, 42. “We were fairly confident,” she said.

Instead, they got only one offer – and at $310,000 it was less than their $319,900 asking price. But it was still above their goal, and $70,000 more than they had paid in 2020. And they were able to get a house in Rochester – also for less than the asking price.

“It was a little disappointing to get under-asking,” she said. “But the house got sold, so I have no regrets.”

It’s a changed world for housing across the Buffalo Niagara region – and even bigger changes could be coming.

Buyers and sellers have grown accustomed to a frenetic pace of sales over the last few years, with low mortgage rates and a shortage of homes driving house shoppers into a tizzy. Dozens of people would traipse through homes within days of them hitting the market. Multiple offers were the norm, and the intense competition increased prices.

Now, with higher prices making homes less affordable for some buyers and a spike in mortgage rates further squeezing budgets, the market is calming down.

“So many people got used to an extremely hot market that they forgot what a normal market is,” said Joel HusVar, broker-owner of HusVar Real Estate in Amherst and president of the Buffalo Niagara Association of Realtors. “Many haven’t experienced what a normal market even looks like.”

New dynamics

Mortgage rates, which averaged 3.1% at the beginning of the year, have jumped to an average of 4.99%, adding $218 to the monthly payment on a $200,000 loan. And the average mortgage rate has dropped by more than half a percentage point from its peak, according to mortgage buyer Freddie Mac.

The economy is cooling, with consumer confidence slipping, businesses growing wary and inflation soaring, although the job market remains strong.

According to current data from national brokerage Redfin, pending sales nationwide are down 14%, median prices are flattening, inventory is rising and the number of price reductions on listings has tripled in recent weeks.

Fewer sales deals are getting signed

Pending home sales have dropped by 6% over the past year

And then there’s Buffalo, where – to hear real estate agents and even clients talk – things are changing, but not nearly as much as elsewhere.

In the Buffalo metropolitan area, pending sales are down 6% over the past year, while median prices are not only up 16% but still climbing, according to data from the Buffalo Niagara Association of Realtors.

“There’s more inventory on the market, and that’s a good thing,” said Susan Lenahan, a veteran agent with M.J. Peterson Corp.

Price drops have increased, but there are fewer here than nationally. And three-fourths of houses still fly off the market within two weeks, compared with 40% nationally.

“It’s cooling off, but there’s still some heat involved,” said Brian Hillery, an agent with Hunt Real Estate Corp.

According to a report by Inspection Support Network, homes in Buffalo stayed on the market for 12.9 days on average, compared to 20.6 days nationally. And 63% of Buffalo-area homes sold for more than asking, versus 53% nationally.

“We’re definitely seeing the same shift the rest of the country is seeing. It’s not drastic, but there’s definitely been a shift,” said Jason Hugar of Hunt. “It’s a move towards a more fair and balanced market. It’s good for everyone.”

Back in April, an average house in East Aurora, priced at $390,000, might get 30 to 40 offers, and would sell for at least $100,000 more, said Walter Mysiak of Nichol City Realty.

But just last month, he noted, a house there listed for $400,000 got only six offers.

“I’ve definitely noticed a change in the past two to four months. There are a lot less bidding wars,” Mysiak said. “You can get a house for under asking, which was not possible three months ago.”

According to Zillow Group subsidiary ShowingTime, the Buffalo market had just over nine showings for every listing in June – a 22% drop from a year ago and down 13% from May.

Pierson, who put her Hamburg home on the market in May, acknowledged that the change isn’t bad. “Everybody was convinced that we would get plenty of offers over asking, so you get caught up in that shark-feeding frenzy,” she said. “But we were just excited to get what we were asking for.”

home sales (copy)

Fewer buyers

What’s happening is that buyers are either dropping out of the market as prices and mortgage rates have risen, or narrowing and lowering their purchasing range.

Inflation on everything from gas to groceries was already putting the squeeze on consumers, but as the Federal Reserve raises interest rates to reduce the risk of inflation, borrowers are now also faced with paying more on credit card balances and other variable rate debt.

“The interest rate has definitely had an effect on how many buyers are in the market,” Hugar said.

The war in Ukraine and fears of recession have roiled the stock market. The Dow Jones Industrial Average is down 11% since the start of the year, while Nasdaq is down 22% and the S&P 500 is down nearly 15%. So consumers’ investment holdings have been dinged after years of gains.

Some would-be buyers grew so frustrated after two years of continually bidding and losing out on homes that they decided to wait until the market pressures eased. Now, some of those buyers are re-entering the market, agents say.

“Buyers are finally breathing a sigh of relief,” HusVar said. “They finally have an opportunity to enter the market even with interest rates on the rise.”

Fewer offers

But those factors don’t mean a plunge in home values, or a big drop in sales activity. There’s still a lot of buyers in the market.

And despite an uptick in new listings, there’s still a shortage of homes for sale. So homes on the market – especially those that are well-maintained, and priced appropriately – are still receiving a lot of interest.

“The really great properties are still getting multiple offers, just fewer of them. Maybe four or five, instead of 15 to 20,” said Gigi Jankowski, an agent with Nichol City Realty.

Still, that’s enough to keep up the competition and prop up the prices, which were still up 16% to $215,000 through the first half of this year, according to Buffalo Niagara Association of Realtors statistics.

“I don’t think they’re going to drop,” said Stephanie Morgan, of JRS Morgan Realty in East Aurora. “Historically, Buffalo has never dropped, even in the worst recession. It just kind of flat-lined. But it’s slowing a bit for sure.”

It’s also meant a return to more normal contract terms. Buyers are once again including standard contingencies like home inspections, which were regularly waived in the past two years as buyers sought every advantage over each other in the heated bidding wars.

“They’re feeling more emboldened to put back terms that they want,” Morgan said. “Buyers are hopeful that they’re going to find a deal, but I don’t think it’s necessarily going to happen. But at least they have a better chance of having their offer accepted.”

And buyers with mortgages from the Federal Housing Administration or Veterans Affairs – who stood less of a chance of having their offers accepted before – are now back in the running, said Neil Gerrity, general manager at WNY Metro Roberts Realty.

Misunderstanding the market

But there is a problem with what Jerry Thompson of Century 21 Gold Standard in East Aurora calls a “misunderstanding of the market,” based on false hopes and expectations.

As homes prices rose, so did asking prices on new listings.

Now, as the market cools, more sellers are even reducing their list prices. That’s happening twice as often now as it was a few months ago – and more often than at any point in the last two years – although such price cuts still represent only about 5.5% of all deals.

“You’re getting the perception that it’s harder to sell houses. Well, of course, it’s because we’re listing them for $100,000 more than a year ago,” Thompson said.

“The market is still selling houses for what they’re worth. They’re still worth a lot more than what they were two years ago,” he said. “But there’s not another 40% appreciation in this market.”

Published by The Buffalo News

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