new data from redfin shows that seller concessions such as cash credits for mortgage rate purchases and repairs and closing costs are becoming increasingly common as higher mortgage rates curb demand for homes. It can keep housing prices artificially high While the real cost of buying a home falls—the Case-Shiller index remains modest Declining since July, but the situation could be worse for sellers.
Rebates were popular before the pandemic, but at the peak of the home-buying frenzy, sellers had all the power. Buyers sprang up when new homes came on the market, sometimes offering to waive inspections, while sellers made multiple over-asking offers and asked buyers to cover appraisal gaps. Now, as buyers pull back due to affordability concerns, homes are sitting in the market for a long time, It is the sellers who are looking desperate, while the buyers are expected to be persuaded.
How common are vendor concessions?
In the fourth quarter of 2022, 41.9% of home sales included concessions, a record high since Redfin started tracking concessions in July 2020. It also exceeded the share of homes sold with concessions during the three-month period ending July 2020, when homebuying activity hit a wall due to the onset of the pandemic. And this is a significant increase from the trough. Between April 2021 and September 2022, sellers offered a discount in only one-fourth to one-third of home transactions.
The data comes from buyer agents across the country who reported to Redfin when a seller offered something to lower a buyer’s total purchase cost. Cash loans for repairs, discounts on closing costs, and offers to lower mortgage rates were all considered concessions. Lowering the listing price was not considered a concession – but some sellers had to lower their listing price or accept less demanding offers in addition to making concessions.
In fact, in 11% of home sales, sellers dropped the price, offered a discount, and still sold below asking. 19% of home sales had a discount and a price drop, and 22% of homes were sold even with a discount.
Which markets are most affected?
In San Diego, California, sellers offered rebates to buyers in 73% of home sales in Q4, an increase of more than 20 percent year-over-year. Phoenix and Seattle saw the largest increases in the share of transactions involving concessions, displaying 29.7 percentage points and 25.6 percentage points, respectively.
This is consistent with predictions from redfin, Moody’s Analytics, and other analysts, who suggest that markets that experienced the most rapid increases in home values during the pandemic will be most vulnerable to price declines. Concessions are becoming more popular in a number of cities expected to see the sharpest improvements, including Phoenix and Seattle, where home prices are starting to come down — but there are outliers.
For example, concessions have become slightly less popular in Austin, Texas. Nearly one-third of home sales in Austin included concessions in the fourth quarter of 2022, down from 38.1% last year. The trend of concessions hiding the real decline in housing transaction costs may not be there – but sale prices in the Austin market are rapid cooling Compared to many other metros.
Metros where majority of home sales now include concessions
| US metro area | Domestic Sales With Discounts, Q4 2022 | change from year to year |
| San Diego, CA | 73.0% | 20.7 ppt |
| Phoenix, AZ | 62.9% | 29.7 ppt |
| Portland, OR | 61.6% | 15.8 ppt |
| Las Vegas, NV | 61.3% | 22.2 ppt |
| Denver, CO | 58.4% | 15.7 ppt |
| Sacramento, CA | 55.2% | 11.2 ppt |
| Los Angeles, CA | 53.2% | 7.2 ppt |
| Atlanta, GA | 51.0% | 14.7 ppt |
Metro where concessions have increased the most
| US metro area | Domestic Sales With Discounts, Q4 2022 | change from year to year |
| Phoenix, AZ | 62.9% | 29.7 ppt |
| Seattle, WA | 46.0% | 25.6 ppt |
| Las Vegas, NV | 61.3% | 22.2 ppt |
| San Diego, CA | 73.0% | 20.7 ppt |
| Detroit, MI | 42.0% | 20.4 ppt |
How can investors benefit?
If you had asked any salesperson for discounts in the summer of 2021, you would probably have been laughed out. But it’s no longer unreasonable to expect a cash credit for mortgage-rate purchases, warranties on home appliances, and repairs or closing costs, even if you’re making an offer that’s less than asking. Keep in mind that homeowners have made huge equity gains over the past two years — many are in a position to be able to make concessions on their homes without losing money. And the more you can reduce transaction costs through concessions, the more you can increase your returns.
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Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
