The share of home sellers offering concessions to close a deal jumped in the final three months of 2022, a new report found. That was before sellers resorted to cutting their listing price to attract buyers.
Approximately 42% of homes sold in the fourth quarter offered buyer incentives, Redfin data found, up from just over 30% in both the previous quarter and the fourth quarter of 2021. Those concessions included mortgage rate buy-downs, cash for repairs or closings costs, and warranties on household appliances. The inducements were more common in pandemic boomtown markets.
For homebuyers, those concessions partially helped to offset higher borrowing costs and experts expect these incentives to continue into 2023.
“Concessions have made a comeback as rising mortgage rates, inflation, and economic uncertainty have dampened homebuying demand,” the report said, “giving the buyers who remain in the market increased negotiating power.”
Buyers gain negotiating power
Last year as mortgage rates climbed at the fastest clip in 50 years, buyers fled to the sidelines, sending pending sales and closed sales down by more than 30% year over year. However, the buyers who remained gained newfound negotiation power on their side. Some even got a lower price and a concession, Redfin found.
A record 22% of homes sold by Redfin agents in the fourth quarter included both a concession and a final price below the listing price. Another record 19% included both a concession and price cut that occurred when the home was still on the market. A record 11% included all three, the report found.
“Buyers are asking sellers for things that were unheard of during the past few years,” Van Welborn, a Redfin real estate agent in Phoenix, said in the report. “They’re feeling empowered, partly because their offer is often the only one, and partly because they know sellers build up so much equity during the pandemic that they can afford to dole out sizable concessions.”
They weren’t the only ones using incentives to attract buyers. According to the National Association of Home Builders, 62% of builders used concessions to boost sales, including offering mortgage-rate buy-downs, paying points, and offering price cuts.
“In this high inflation, high mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Ga., said in the press statement.
Concessions popular in pandemic boomtowns
Some of the most popular cities during the pandemic saw the biggest annual spikes in buyer concessions, Redfin data showed.
Phoenix saw the largest jump in the fourth quarter, with the share of concessions growing by 29.7 percentage points from a year earlier. This was followed by Seattle (up 25.6 ppts), Las Vegas (up 22.2 ppts), San Diego (up 20.7 ppts), and Detroit (up 20.4 ppts).
Overall, concessions were most commonly offered to buyers in San Diego with 73% of sellers giving at least one buyer incentive, followed by Phoenix (62.9%), Portland, OR (61.6%) Las Vegas (61.3%), and Denver (58.45%).
“There’s an opportunistic type of buying for some borrowers out there, homebuyer interest should continue to pick up the closer we get to the spring,” Keith Gumbinger, vice president of HSH.com, told Yahoo Finance. “We’ll see if mortgage rate levels change or prices soften. One thing’s for sure – homebuyers are adaptable.”
Will buyer concessions last?
As mortgage rates remain elevated and affordability remains a top concern, economists expect that slower market conditions will continue into 2023 – tipping the balance in favor of buyers.
According to Danielle Hale, chief economist for Realtor.com, the share of buyer concessions has been “growing since late summer 2022,” around the time the home prices peaked. Since then, home sellers have either had to adjust their pricing expectations or offer incentives to close a deal.
Gumbinger noted that housing market activity may pick up in spring, but economic headwinds will likely push builders to offer “price concessions… to support new construction in 2023.”
Economists from Bright MLS also expect homes to stay on the market longer this year, a sign that buyers are taking their time by “asking for concessions and negotiating on a price.”
“The real silver lining in 2023 is that there are going to be more options,” Hale told Yahoo Finance. “Homes are going to take longer to sell and we’re going to see more of them sitting on the market relative to 2022 or 2021. Buyers have a little bit more time to make decisions that won’t feel as rushed as they might have done over the past couple of years.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.