Sellers are taking a smaller discount to secure a sale as more properties hit the market and mortgage rates increases hit pause, according to Zoopla.
Buyers are securing an average £10,000 (3.9%) discount to the asking price to make a deal in the first three months of the year, which is far less than the £14,250 average discount (4.5%) seen in November 2023. This is lowest level since July 2003, the figures from Zoopla’s monthly House Price Index show.
Discounts remain larger in London and the South East, where there is an average discount to asking price of 4.3% or £19,500.
Read more: Bank of England says UK is coping with higher interest rates
“We don’t believe that house prices are about to increase more quickly but there is more buyer interest. Sellers need to remain realistic on where they set the asking price if they are to take advantage of improving market conditions to secure a sale and move home in 2024,” Richard Donnell, executive director at Zoopla, said.
New sales agreed are 9% higher than a year ago, a trend that is encouraging more sellers to list their homes for sale with 20% more homes for sale compared to this time last year.
The property market has received a boost, with mortgage rates now at 4.4% for a 75% loan to value 5-year fix rate loan, down by over 1% from a high of 5.8% in June 2023. After years of ultra-low rates, 4% can still be considered high but far from the average two-year deal of 6.66% recorded during Liz Truss’ mini-budget.
“Rising wages and falling mortgage rates have boosted consumer confidence and this is feeding into improving levels of housing market activity over the first quarter of 2024. House prices are falling at a slower rate but it remains a buyers market where there is much greater choice of homes for sale,” Donnell added.
Read more: Renting now cheaper than owning amid high UK mortgage costs
The strongest growth in sales activity continues to be in areas with more affordable house prices such as Yorkshire and The Humber (11%) where the average house price is £185,600 and the North West (13%) with an average house price of £194,500. The strongest growth in new sellers listing homes is in the South West (28%) and North East (26%).
The average estate agent had almost 30 homes for sale in the first three months of 2024, a return to the pre-pandemic average. This means buyers have more choice and room to negotiate, especially where homes are failing to attract buyer interest.
“While we’re yet to see interest rates fall there’s no doubt that the certainty brought about by a continued freeze has helped to improve market sentiment considerably. Despite the disappointment of the Spring Budget, buyer confidence is building and there remains a strong appetite to transact in 2024,” Marc von Grundherr, director of Benham and Reeves, said.
Watch: UK house prices creep up as experts predict ‘smoother year’ for buyers and sellers
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London’s housing market is continuing to bounce back after its slump, with house prices down just 0.4 per cent year on year for February 2024.
The average sold house price in London is now £534,000, according to the latest Zoopla House Price Index.
Sellers are now accepting £19,500 below asking price on average, a 4.3 per cent reduction, compared to £25,000 (6.1 per cent reduction) in November 2023.
There are eight per cent more homes on the market in London.
Croydon saw the biggest positive change in house prices annually, rising 2.4 per cent per cent with an average house price of £392,100.
Ealing and Bromley both saw the biggest drop in house prices, down 0.8 per cent to £514,000 and £513,000 respectively.
Still a buyer’s market
Zoopla said that lower mortgage rates in anticipation of the Bank of England eventually lowering the base rate from 5.25 per cent underpinned this spring bounceback.
“House prices are falling at a slower rate but it remains a buyers market where there is much greater choice of homes for sale,” said Richard Donnell, executive director at Zoopla.
“We don’t believe that house prices are about to increase more quickly but there is more buyer interest,” Donnell added.
“Sellers need to remain realistic on where they set the asking price if they are to take advantage of improving market conditions to secure a sale and move home in 2024.”
Compromise on price
Marc von Grundherr, director of Benham and Reeves, agreed that making sure an asking price was realistic in the first place remains key, especially if the seller is keen to move home quickly.“Price remains the key compromise for sellers when it comes to securing a buyer in today’s market, with higher mortgage rates continuing to restrict buyer purchasing power,” said Grundherr.
“However, the gap between this purchasing power price point and seller asking price expectation has narrowed and we’re finding that sellers are more than happy to oblige in order to make their move.”
In some parts of London it can take as long as 241 days on average to sell a home.
Zoopla forecast that house prices won’t start rising again that quickly, as more homes continue to come onto the market and provide buyers with options.
However, London is lagging behind the rest of the country in terms of supply, with 20 per cent more homes for sale in the UK compared to this time last year.
Market getting busier
Nationally, house prices are down 0.3 per cent year on year, with sellers accepting an average discount of £10,000 (3.9 per cent) from their original asking price.
Matt Thompson, head of sales at Chestertons, said the property market continued to improve this month.
“In March, the property market witnessed steady demand from buyers although some house hunters decided to pause their search in the hope for major incentives to be announced in the Spring Budget. As this wasn’t the case, the majority of these buyers have since resumed their property search,” Thompson explained.
“As a result, March concluded the first quarter of the year with a busy property market — particularly in the capital where demand continues to outstrip supply.”
“For most, their primary residence is their largest asset, so it’s important to understand the financial and tax implications of the sale,” said Felicia Captain, a broker with Coldwell Banker Realty in Wellesley. “Early preparation may even lead to a house selling faster or for more money.”
Here are eight things owners should do to financially prepare for the sale of their home:
Wait for warm weather. According to a 2022 analysis of the best days of the year to sell a home by real estate data firm ATTOM, the months of May, June, and July offer seller premiums of 10 percent or more above market value. The firm analyzed more than 46 million single-family home and condo sales between 2011 and 2021 and found that spring and summer are when people are looking to buy — and willing to pay more.
Decide how to sell. Do you have the necessary time and experience to sell the house on your own, or will you retain a real estate agent to represent you? According to the 2023 Profile of Home Buyers and Sellers by the National Association of Realtors, 7 percent of recent home sales were so-called FSBO (for sale by owner) sales. NAR says that FSBO homes sold at a median price of $310,000 between July 2022 and June 2023, significantly lower than the median of agent-assisted homes at $405,000. “Like it or not, real estate agents get you the most coverage through the MLS system,” Bill Banfield, executive vice president of capital markets for Rocket Mortgage, said of the Multiple Listing Service database. “And that’s likely the way most people will sell their homes.” Agent commissions vary. Remember that they are negotiable.
Calculate your expected net proceeds after expenses. You’ll have lots of expenses to get the house ready for sale — repairs, cosmetic updates, staging, etc. You’ll also have a variety of other closing costs, including tax stamps, paid by the seller, which come to $4.56 per $1,000, and legal fees, about $1,500 for a seller, according to Hillery Dorner, a real estate attorney with Dorner Law & Title Services PC in Concord. And, of course, if you have a mortgage on the house, that will be paid off and deducted from the amount you’ll be paid at closing. After estimating the costs of sale, you’ll arrive at your net proceeds — a number that’s important to know, especially if you plan to roll over those proceeds into another home.
Prepare for an appraisal gap. “As home prices have gone up, some sellers might try to get aggressive when selling their homes,” said Rocket’s Banfield. “If the purchase price is higher than the appraised value, then the buyer has to either come up with the difference in cash or negotiate the price with the seller.” If the sellers agree to reduce the price, the net proceeds will be lower than anticipated, which could be bad news if they were counting on a certain bottom line to purchase another home.
Anticipate the high cost of moving. Sure, you can rent a truck and move yourself to save money, but if you’re like most people, you’ll hire a moving company. The cost of a move varies, depending on the size of your home, when you move, how much stuff you’re moving (determined by weight), the distance, and whether you will pack yourself or have the movers do it. According to United Van Lines, a 15,000-pound move (an average four-bedroom home) from Boston to Portland, Maine, would cost about $7,000 in March or about $8,000 in June, during peak season. The same move to Tampa in March would cost about $10,000; in June, it would be closer to $13,000.
Have the right bank account. If your house is titled in the name of a trust, Dorner advises you to open up a bank account in the name of the trust if you haven’t already. “In Massachusetts, the sales proceeds have to be written to the name on the deed,” she said. “If there’s no bank account, you can’t wire into it or negotiate a check payable to the trust.”
Expect the unexpected. Issues often pop up when selling a house. For example, if there’s little interest in your home, you may want to consider offering incentives, such as buying down the interest rate of a buyer’s mortgage. Or, if you haven’t found a home by the time the closing is nearing, you may want to negotiate a lease-back of your present home. Some sellers even include a “suitable housing provision” in the sales contract, which gives the sellers the right to terminate the transaction if they haven’t found suitable housing within a certain time frame, Dorner said. You may also want to check land records, at MassLandRecords.com, to make sure your title is clean and that there aren’t any tax liens or other encumbrances that may hold up the closing.
Realize you may also be a buyer. If you’re purchasing a new home, you’ll need to prepare just like any buyer would. That means checking your credit and correcting any errors, getting preapproved for a mortgage, and ensuring you’re getting the best rate and terms. Make sure that your sale is as firm as possible, to qualified buyers, so that you can go into a new purchase with confidence.
Robyn A. Friedman has been writing about real estate and the home market for more than two decades. Follow her @robynafriedman. Send comments to Address@globe.com. Follow Address on Twitter @globehomes and sign up for our free newsletter at Boston.com/address-newsletter.
“Nobody can afford a home right now.”
That’s how the vast majority of would-be buyers felt last year, according to a recent analysis by real estate group Redfin.
That was closer to being true for minority households.
The average Black household could afford just 7% of listings for sale last year on a median income, while white households could afford 22% of listings. The share was nearly as bad for Latino households, which could afford just 10% of homes for sale. Meanwhile, Asian households could afford 27% of homes for sale at the median income.
The affordability picture was bleak overall. Just 16% of homes for sale in 2023 were affordable to the typical US household, the lowest share on record since Redfin started tracking the metric a decade ago. Overall, the share of affordable listings in the US dropped to 352,500 last year, down 41% from 596,135 a year earlier and down from over 1 million during the prior decade. The costs of homeownership rose even in historically affordable areas due to limited inventory propping up prices.
Read more: How to buy a house: 13 steps to getting the keys to your new home
Despite these hurdles, there are signs 2024 could be better. Redfin economists noted that wages for non-white households grew faster last year, helping reduce the income gap. Rents have also shown signs of falling, which could help renters — often communities of color — save more toward their homebuying nest egg.
“The wage gap is a big part of it,” Daryl Fairweather, chief economist at Redfin, told Yahoo Finance. “Home prices have become so expensive in a lot of metro areas. It makes it really hard for Black and Latino households to be able to afford a home compared to their white counterparts.”
Fairweather added: “The higher the mortgage rate, the higher a mortgage payment will be. It creates another barrier for people with less income to put towards a down payment.”
Read more: Mortgage rates below 7% — is this a good time to buy a house?
‘The racial affordability gap exists nationwide’
Even the most affordable metropolitan areas in the US became less accessible to Black and Latino homebuyers last year as both prices and rates soared.
In Detroit, where mortgage payments are among the lowest in the country, just 31.8% of listings were affordable for the typical Black household in 2023, and 50.2% were affordable for the average Latino household. That’s much lower than the 66% affordable listings for the typical white household.
Homes listed in Detroit were priced at an average $85,000 in December, up 21.4% from 2022. According to the US Census Bureau, the typical single earner in Michigan made an annual income of $63,380.
And in more expensive markets, where nearly everyone had a hard time finding affordable housing, Black and Latino households had far less options to pick from.
For instance, in Anaheim, Calif., less than 0.5% of listings were affordable to the typical Black and Latino households in 2023, compared with nearly 2% that were affordable for the average white household, Redfin found.
As of December, the typical home listed in Anaheim cost $866,000, up 12% year over year. Meanwhile, the average Californian earned $75,235 annually as of May 2023.
“The racial housing affordability gap exists nationwide, from the least affordable metros to the most affordable metros,” the report said.
According to Redfin, a listing is considered affordable if a buyer would have to spend no more than 30% of their income on the payment. However, that goal has become harder to achieve as wages have failed to keep up with rising housing costs.
At a national level, an average homebuyer in 2023 had to earn an annual income of at least $109,868 if they were aiming to spend under 30% of their income on a monthly mortgage payment for a median-priced home. That was 8.5% more than 2022 and $31,226 more than the typical household earned in a year.
While wages for non-white households grew at a pace of 5.9% in December 2023 — compared to 5.6% for white households — minorities still lag behind. Per the latest US Census data, in 2022, the median household income varied by race.
The average Black household earned a median income of $52,860, compared to Latino households, which earned an average of $62,800. Meanwhile, white and Asian households made a median household income of $81,060 and $108,7000, respectively. On a national scale, the median household income was $74,580 in 2022.
“A perfect storm of inflation, high prices, soaring mortgage rate and low housing supply caused 2023 to go down as the least affordable year for housing in recent history,” Redfin senior economist Elijah de la Campa said in a separate report. “The good news is that affordability is already improving heading into the new year.”
Expect better homebuying conditions in 2024
Last year’s dramatic decline in affordability was in part due to a drop in listings, which fell 21% on a national scale year over year. Elevated mortgage rates also propped up housing costs as fewer homeowners decided to list their homes for sale — aggravating the inventory shortage.
But buyers could have better luck in 2024.
Rent prices are finally cooling down due to the building boom in recent years, Redfin noted, and should reduce further in 2024. Already, the median asking rent fell 2% year over year in November 2023 to $1,967, the largest annual drop since February 2020.
Renters, typically younger Americans in prime ages for homebuying, have long cited an inability to save for a down payment due to rising rent prices as a barrier to homeownership. The softening of rent prices could give them some wiggle room to save.
It’s not hard to imagine why down payments have been so hard to save up for.
According to a separate study by Realtor.com, down payments hit a new peak in the third quarter of 2023 with an average 15% down payment amount of $30,000. That’s up from 11.5% in 2020, when the typical down payment was just $17,000.
That uptick in down payments, a result of higher rates and home prices, was a major barrier for both Latino and Black homebuyers. Particularly those with below-average or no credit score.
“If you’re paying in cash or putting a large down payment, you can offset some of that increase in interest payments, but when you have a low down payment and if you have a lower credit score, the mortgage impact can be really high,” Fairweather said.
Further aiding affordability in 2024 would be softening mortgage rates, which Redfin predicts will land on 6.6% by the year-end. Other economists expect a bigger drop to around 6% or even under. The improved affordability could thaw some of the mortgage rate lock-in effect, convincing some homeowners to list now that rates are down over a full point from their near 8% peak in October.
According to Redfin, the increase in housing supply throughout 2024 and a burst of new construction could cause prices to drop by 1% on average by year-end.
“Small homes, like condos and townhomes, are in direct competition with apartment rentals. And since asking rents have been declining for three months in a row, that will put downward price pressure on more affordable, smaller homes,” Fairweather said. “This should improve affordability for first-time home buyers seeking starter homes.
“Also, the drop in mortgage rates we are forecasting should improve affordability.”
Gabriella is a personal finance and housing reporter at Yahoo Finance. Follow her on X @__gabriellacruz.