December is usually the slowest month for the housing market, but this season is not so normal. Some unique dynamics may make this December one of the better times to both buy and sell a home.
First and foremost, mortgage rates are turning what was a red-hot market into a lukewarm market, and that is motivating buyers more than usual. That’s because home prices ran up so far so fast during the recent historic housing shortage, that higher rates are having an outsized impact.
Real estate agent Lynn Fairfield of Re/Max Suburban held an open house Sunday in suburban Chicago, and rates were front and center in the living room conversations.
“I see more people buying right now because they’re afraid rates will be higher in 2019,” said Fairfield.
The average rate on the 30-year fixed spiked this past fall, after flatlining over the summer. Rates are now about a full percentage point higher than they were a year ago, hovering now just below 5 percent. They are expected to move higher in 2019, however.
Combine that with strong home price appreciation over the past two years, and some buyers, especially first-timers, have now hit an affordability wall. That is why sales of both new and existing homes have been weaker for several months, but that also presents an opportunity for buyers. Prices are finally starting to ease — or, at least, the gains are shrinking.
Prices are usually lower in the winter months, in fact 18 percent lower in the Chicago area on average than at the peak of the market in June, according to Re/Max. So add higher rates to that, and sellers will have to be more flexible this year. The sky is no longer the limit. Not even close.
“The housing market always lets up a little in the fall, when kids are back in school and the home shopping season wraps up for the holidays,” said Aaron Terrazas, senior economist at Zillow. “But this fall and winter are shaping up to be more favorable for those buyers who have struggled to get into the housing market for several years amid red-hot competition.”
Zillow is seeing a sharp increase in the share of properties with price cuts, even in overheated markets like Seattle, Las Vegas and Boston.
Of course the number of new listings are the lowest in December, as a new home is not traditionally a holiday gift, and anyone with children doesn’t want to move during the school year.
“Though the holiday season is not going to give you plenty of options to choose from, there are reasons why you should NOT put your home search on hold for the holidays,” said Danielle Hale, chief economist at Realtor.com. “Chief among them, December is the best time of year if you want to avoid competitions.”
Views per property are 21 percent lower in December than they are during the rest of the year, according to Realtor.com.
While supply and competition may both be at their low point, motivation is at its high point, for both buyers and sellers.
“That buyer has to move. Either they have a lease expiring Jan. 1, or they have saved enough money for their down payment, so they are motivated to buy,” said Fairfield. “A lot of people are more motivated price-wise from the selling standpoint too, because they too want to get to their next location.”
Homes do stay on the market longer in December, on average five days longer than the rest of the year, so sellers have to be patient. And buyers have to be flexible. If the seller hasn’t already vacated the property, they may not want a lot of buyers traipsing through their holiday decorations or coming around when family and friends are visiting.