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3 Reasons Why Bidding Wars Will Ease This Year

3 Reasons Why Bidding Wars Will Ease This Year
Written by Publishing Team

Renderings were the norm in 2021. In fact, at some point last year, Redfin It reported that 72% – nearly two out of three – of its buyers had experienced one problem. (In some markets, the share was as high as 83%.)

These bidding wars have made a challenging and pricey market even more so. Buyers have had to waive contingencies, skip inspections, and offer a much higher price tag just to get a spot at the door. Even then, winning over a property was tough—particularly with the increased cash offers that increased competition.

Fortunately, those days seem to be over. In November (the latest available month), the bid war rate reached its lowest level since 2020, with only 60% of buyers for one, according to Redfin data.

people in the auction.

Image source: Getty Images.

Will the trend continue as we go into 2022? Can buyers expect a less competitive market as they search for properties in the new year? The answer seems to be yes. Here’s why.

1. Mortgage rates are on the rise

Just this week, interest rates on 30-year loans came in at 3.45%, marking a 40 basis point jump in the past three weeks. At this time last year, the average rate was just 2.79%.

Unfortunately for buyers, most experts expect prices to continue to rise as the year goes on. Some are more optimistic, expecting average rates of around 3.2% by the end of 2022 (Fannie Mae), while others have a more optimistic view, forecasting 4% for this year (Mortgage Bankers Association).

No matter how you slice it, price increases are likely to be in the cards – and likely to dampen buyer demand somewhat. And fewer buyers? This means fewer bidding wars and an easier market for those still looking for a home.

2. Inflation has left many buyers behind

It’s no secret that inflation is rising. In fact, the CPI rose 7% in the past twelve months from December, posting the highest inflation in nearly 40 years.

The sharp jump alarmed many consumers, and in the real estate market, even undone their dreams of buying housing completely. According to a recent survey by Redfin, 29% of respondents said that rising inflation is causing delays in buying a home. Another 11% have given up buying homes because of it.

As with rising prices, this is just another factor that should help mitigate competition and reduce the number of bidding wars that remaining buyers face today.

3. The supply is expected to increase

The extremely limited housing supply has had a lot to do with the high-risk housing market in the past year. And while 2022 won’t exactly match demand and supply yet (that could require about 4 million additional homes, according to Freddy Mac), we should start to see the stock increase as the year goes on.

Redfin expects new listings to exceed 7.6 million in 2022, the largest share since 2018, while Realtor.com is betting a 0.3% increase in inventory for the year. It sounds small, but compared to the 18% lower regression in 2021, anything helps a little.

Increased construction will also relieve some of the pressure on supply. While there are still many headwinds (lack of skilled labor, rising material costs, higher insurance premiums, etc.), the National Association of Home Builders is starting 830,000 new single families this year — up from just 759 thousand in 2021. It’s a good idea to get better, but remember: the market is still seriously undersupplied, so don’t expect a massive influx of real estate any time soon.

It’s not the end of bidding on wars

Bidding wars should get less and more between this year, making things a little easier for real estate buyers and investors to get on their feet. But a buyer’s market? That’s definitely not in the cards, and many consumers can still stand up to competition – particularly in some of the country’s most sought-after markets – Hey, Tampa!

If you’re looking for a property this year, it’s still a good idea to get pre-approved (or with all the money) and be prepared to make your best offer right from the start. You should also hire an experienced local agent who can guide you on the best ways to stay competitive in your unique market.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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