'Sellers Were Caught Off Guard': 3 Key Takeaways From the Latest Market Report

Price cuts are everywhere, buyers are dropping out, so why are home values still appreciating? We spoke with Zillow economist Nicole Bachaud to dig into the numbers behind Zillow’s latest research.

1. Price cuts are increasing, especially for mid-tier homes.

Takeaway for agents: “There’s been a steep run-up in the share of listings with price cuts in the last six months,” said Bachaud. “I think sellers were caught off guard in what they expected the market to do: ‘My neighbor down the street just sold her house for $100,000 over list price; maybe I can list mine super high and sell it too.’ 

“That's not necessarily the case now — you're not getting 20 offers per home anymore, so your listing strategy has to change. Sellers have to work harder and bring their A-game to marketing and staging and photography, and then properly price their homes so they sell quickly.”

“In the most recent weeks, mid-tier homes had the highest increase in price cut activity across markets. It’s most pronounced in expensive markets like Los Angeles, New York and Seattle, but we’re also seeing it in more affordable places like Atlanta, Kansas City and Tampa.”

“It’s important to remember that homes selling in two weeks versus one week isn’t something to fret over. It only takes one buyer to sell a house, so cooling competition shouldn’t cause home sellers to panic — and a rebalanced market is better for everyone in the long run.”

2. Buyers have more time to think, but not much. 

Takeaway for agents: “I think buyers are finally able to breathe with competition falling, so they have more time to make these huge decisions with less pressure,” says the Zillow economist. “A few months ago, maybe buyers had three or four extra days to make a decision between when a home lists and when it goes pending, compared to the peak pandemic market. But they used to have something like 30 days around this time of year.”

“This doesn’t mean prices are going to come crashing down. They’re going to continue to appreciate in the long run — they're just doing that slower, and we might see a slight dip in prices in the next few months as the rebalancing pushes on. Places that are seeing the biggest price drops are the most expensive and hottest markets of the pandemic, like San Jose and Austin. Appreciation is still happening due to a continued lack nationwide of inventory and demographics keeping demand for (affordable) homes high.”

3. Some deals are falling apart as the affordability picture changes.

Takeaway for agents: “One reason why contracts might be falling through is based on buyers’ finances, especially debt-to-income ratios and the ability to qualify for a mortgage,” Bachaud says. “With rates staying elevated, someone who could have afforded a $400,000 house six months ago might only be able to afford a $350,000 house today. Not to mention the fact that buyers’ other costs have increased, stretching their budgets even thinner. 

“If you look at new construction, contracts are being canceled a lot more. If you bought a house in February but didn’t lock your rate, and then that home's not done until July, you might not be able to afford that house anymore.”

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