Say Goodbye to Bidding Wars in 2023

Buyers may not have to duke it out to the same degree.

From a seller's perspective, there's perhaps nothing better than listing a home and having it land in a bidding war. But from a buyer's perspective, bidding wars are nothing but bad news.

During a bidding war, multiple buyers duke it out over the same property. What will often happen is that buyers will keep raising the price of a given home until most have to back out, leaving a sole buyer victorious. 

But that victory often comes at a price -- a higher offer. And at a time when mortgage rates are making things more expensive for buyers, that's not a great position to land in.

But while bidding wars were a mainstay of the real estate market in 2021 and the first half of 2022, there's reason to believe they won't be nearly as common in 2023. Here's why.

Housing inventory is picking up

A big reason sellers have gotten away with commanding sky-high prices for their homes is that there hasn't been enough real estate inventory to meet buyer demand. But that seems to be changing.

The National Association of Realtors reports that in July, there was a 3.3-month supply of available homes on the market. Now for context, it normally takes at least a 4-month supply of homes to fully meet buyer demand. But in June, there was only a 2.9-month supply of available homes to purchase. And in July 2021, housing inventory sat at a mere 2.6-month supply.

All told, it looks like housing inventory is ramping up. And that's a great thing for buyers, because it not only gives them more choices on the home purchasing front, but it could also spell the end of bidding wars. And that could, in turn, help home prices return to more moderate levels.

Now given how inflated home prices are right now, buyers shouldn't expect to see many bargains during the tail end of 2022. But come 2023, we could start to see a significant decline in home prices, which could make homeownership accessible to a larger number of buyers. 

Should sellers worry?

Sellers don't necessarily need to panic over the fact that bidding wars may be coming to an end. But it's also not the best news for them. Those who are serious about selling a home may want to do so sooner rather than later. 

Right now, buyer demand still very much exceeds the amount of available homes on the market. As that gap narrows, sellers are apt to lose their edge. It pays to look at listing a home during the latter part of 2022, even though the fall and early winter, historically speaking, aren't necessarily the most popular times to do so.

It could also pay for sellers to list their homes sooner rather than later to get ahead of rising mortgage rates. We can't say with certainty that mortgage rates will rise in 2023, but that's a distinct possibility. Sellers who get moving could benefit from less competition and buyers who aren't as put off by higher financing costs.