5 Ways the Cooling Housing Market Is Helping Buyers

If you want to buy a home, don't allow rising interest rates to discourage you.

For the first time since March 2021, the average home is selling below the asking price. In fact, prices have fallen by 6% since June. As the market cools, home buyers savvy enough to hang in there may be the ones to benefit. If you're in the middle of house hunting, things may still feel too hot to handle, but stay with us here. As housing markets cool, home buyers are ultimately rewarded in these five ways.

1. Buyers can't go back and change the price of a home, but they can refinance

Home prices hit an all-time record high in June. They're down 6% since then. A home selling for $400,000 last spring is likely to sell for around $376,000 today. That said, home prices are still 5.9% higher than they were this time last year, but the 6% drop since June is a good sign for buyers.

My husband and I happened to sell our home in June at a price that surprised us, particularly because interest rates had already jumped by 2%. Not only did we receive multiple offers the first day the house hit the market, but buyers were willing to skip contingencies, including a home appraisal (which seemed absolutely outrageous to us).

When my husband and I moved, we were willing to buy the ugliest house on the block for this one reason: We knew that we would never be able to renegotiate the sales price, but we can refinance when rates drop. We were not willing to get into a bidding war over a house, and frankly, buying ugly prevented that.

If you offer $100,000 more than a home is worth, you owe that money until the day you send your final payment to the mortgage lender. However, if the best interest rate you can snag right now is 7%, you have a couple of options. If you don't plan to stay in the home for long, look at an adjustable-rate mortgage (ARM) for a lower upfront rate. Or, better yet, wait until rates dip again and refinance your mortgage. The decision is in your hands.

2. A cooling market means less competition

According to real estate giant Redfin, home sales in the U.S. dropped by 19% year over year in July. That represents the lowest level since the pandemic shut down large swaths of the economy.

The reason for the drop in sales is clear: Fewer potential buyers. Therefore, it's no coincidence that by August, the average U.S. home sold below the asking price.

Investors are also exiting the market, as investor home purchases plateaued in the second quarter of 2022 (April through June). Investors are in the business to make money, and at one point, they could borrow enough to purchase a home at a rock-bottom interest rate. Once rates began to rise, they lost their motivation. After all, higher monthly mortgage payments mean less profit. As investors leave the market, individuals who hope to become homeowners face even less competition.

3. Buyers have more time to shop around

Home buyers can't help but benefit from the relative lack of competition. That frenzied sense of needing to pay more for a home than it's worth has been muffled, and home buyers now have a chance to carefully consider the financial ramifications of an offer. They no longer have to make a snap decision because there are 15 other parties in the wings waiting to snap the house up.

In June, the typical home was on the market for 17 days. By August, that was up to 26 days. While nine days more may not seem like much, it's an eternity to a home seller hoping to cash in. It also makes those sellers more likely to accept an offer below the asking price.

4. Those willing to wait may land a great deal

I'm convinced that my husband and I were able to buy our ugly house below its appraised value because we deliberately looked for homes that had been on the market for several weeks or more. The fact that we found one in June should have been a harbinger of things to come. By July, the number of U.S. homes listed for 30 days or more increased by 12% year over year.

There may be absolutely nothing wrong with a house that lingers on the market. In fact, ours aced its home inspection (evidently, our inspector wasn't looking for lush landscaping). We were able to move in, knowing there wasn't a single thing that needed to be repaired. And fortunately, we were able to use some of the proceeds from the house we sold to give the new house a cosmetic makeover.

If you're not married to the idea of buying a home the first weekend you go house hunting, there are deals to be found. And now, thanks to the cooling market, there's even less competition for those homes.

5. Contingencies are back in play

One of the best things about a cooling housing market is that it puts buyers back in the driver's seat. No longer do you have to skip important contingencies to have your offer accepted. You owe it to yourself (and your bank account) to ask for a home inspection. Your lender will demand a home appraisal, but it should be just as important to you. A home appraisal lets you know if you're overpaying for a property or getting a fair deal.

So what if you didn't get in early enough to land a 2.9% APR? Those who did may regret feeling rushed to buy or overpaying. What you have in front of you is a historically decent interest rate. At around 7%, it's lower than 7.76% -- the average rate between Apr. 1971 and today. The trick is to be patient enough to find a home fair enough to pair with that interest rate.