According to a new report from Redfin, home sellers gave concessions to buyers in 42.9% of U.S. home sales during the three months ending April 30, up from 25.5% a year. That’s just shy of the 45.6% record high hit in February.
The share of home sellers providing concessions – which include money toward repairs, closing costs and mortgage-rate buydowns – has inched down from February’s peak due to typical seasonality. Concessions become less common in the early spring because that’s when more buyers typically enter the market, increasing competition and giving sellers more power. But this spring, concessions posted a smaller decline than the last two years because high mortgage rates have made it so sellers in cool markets need to take extra measures to woo and secure buyers.
The likelihood of a seller giving a concession dropped 6% from February to April, compared with 18% drops during the same period in 2021 and 2022. This spring’s smaller drop corresponds with less homebuyer competition.
Sellers are throwing in freebies to woo buyers at a higher frequency than last year for several reasons. Many house hunters have put their buying plans on hold because of rising mortgage rates. Although prices have fallen 4% from a year ago, that’s not enough to offset the cost of higher rates, with monthly mortgage payments at a record high. Lack of supply is also dampening demand, with fewer people listing their homes for sale as they hold onto comparatively low mortgage rates.
Many people who are listing their homes are moving because they need to, possibly due to a divorce or a new job in a different state. Those sellers may be willing to provide concessions to prompt a quick sale of their home.
It is also notable that homebuilding surged during the pandemic. Builders tried to capitalize on the moving frenzy, especially in pandemic homebuying hotspots like Tampa and Nashville, where 58% and 49% of sellers gave concessions to homebuyers. Now that rising rates have pushed many buyers out of the market, builders are trying to sell their backlog of inventory by offering perks like money toward closing costs, gift cards and even free cars.
While buyers have the upper hand in some markets, that’s not the case everywhere. In some areas, there are so few homes for sale that homebuyers are encountering competition. And when buyers are involved in a bidding war, they typically won’t win if they ask for concessions like mortgage-rate buydowns or help with closing costs.
Concessions by homesellers were most common in Phoenix, San Diego and Raleigh, N.C. Sellers in Phoenix gave concessions to buyers in 68.5% of home sales in the three months ending April 30, the highest share of the metros Redfin analyzed and nearly double 35.9% a year earlier.
San Diego (66.1%), Raleigh (64.6%), Las Vegas (59.1%) and Denver (58.1%) rounded out the top five. Like the metros where concessions rose most, these are all places where homebuying demand skyrocketed during the pandemic and is now waning.
Photo from Unsplash by Jose Rago