Home Sales Starting To Cool; ‘Bidding Wars’ Waning

With home prices and interest rates rising, inventories increasing, and demand from institutional investors falling – not to mention new regulations taking effect in January that will make it harder for many home buyers to obtain a mortgage – the days of ‘bidding wars’ on properties appear to be waning, at least for now.

According to a special report on Bloomberg News, home sales in states where bidding wars have been fueling the housing recovery during the past year – including California, Arizona and Nevada – are now starting to cool. Rising home prices, in particular, are causing many homeowners in these states to put their homes on the market, which, in turn, is boosting inventories, thus giving home shoppers more options. But at the same time, there are fewer home buyers in the market.

Home sales in Sacramento, Calif., for example, have declined by more than 25% from a year ago. While inventory remains tight, the supply of homes on the market has almost doubled, Erin Stumpf, a local real estate agent, says in the report.

As a result, home prices are expected to stabilize over the next year. According to Seattle-based brokerage Redfin, asking prices in September were lowered on about 25% of listings, while in October they were lowered on 23.8%.

What's more, data from the National Association of Realtors shows that inventory of unsold homes climbed in September from a year earlier for the first time since 2011.

Meanwhile, mortgage origination volume for both existing and new homes has fallen slightly. The Mortgage Bankers Association (MBA) is forecasting that mortgage origination volume will decline by as much as 32% in 2014 – however, most of that will come in the form of declining refinancing volume.

In addition, interest rates are expected to rise over the long term: MBA Chief Economist Jay Brinkmann recently forecast that rates for 30-year, fixed-rate mortgages will likely top 5% by the end of 2014 and may increase to 5.5% by the end of 2015.


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