Online real estate platform Redfin released a report on Monday (October 6) stating that nearly 260,000 apartment sellers were recorded in the U.S. in August, while buyers barely exceeded 150,000, marking the fifth consecutive month where sellers outnumbered buyers by 70%.
According to Redfin, excluding pandemic factors, this spring and summer have been considered the best buyer’s market in the past 12 years. The sales data is sourced from the Multiple Listing Service (MLS) records for listings and transactions.
Senior economist at Redfin, Asad Khan, pointed out that apartment buyers have numerous choices and are in a favorable negotiation position to demand price concessions and more incentives, which is the core characteristic of a “buyer’s market.”
Khan added, “Apartment buyers have the upper hand, and the decreased construction of multi-unit housing leading to rising rents makes it a good time to transition from renting to buying apartments.”
He further mentioned, “Although apartment prices remain relatively high and HOA fees continue to climb, apartments still offer a price advantage over single-family homes. With some potential sellers exiting the market, the buyer’s bargaining power may not last long.”
Redfin believes that the sales slump is due to multiple factors.
Apartment prices and single-family home prices are approaching historical peaks, and mortgage rates remain high.
Based on data from the Federal Reserve Bank of St. Louis (FRED) as of the week of October 2, the average 30-year mortgage rate reached 6.34%.
There are differences between apartment mortgages and traditional home mortgages. Lenders not only consider the buyer’s financial situation but also assess the financial health of the apartment property. This dual review process often leads to higher apartment mortgage rates. The Federal Housing Administration added that buyers might need to pay a higher down payment percentage.
Compared to single-family homes, buyers have stronger purchasing power when acquiring apartments. Redfin data shows that the average selling price of apartments in August was $350,000, a slight 1% decrease from the same period last year.
Meanwhile, FRED shows that the average price for single-family homes in July was $428,500. The National Association of Realtors reports that the median home price in the western region was the highest in the second quarter, reaching $646,100.
Redfin elaborated that potential homebuyers may hesitate to purchase apartments due to stricter regulations by Homeowners Associations, which could lead to increased management fees and special assessments.
California’s “Balcony Bill” requires regular inspections of balconies, stairs, and terraces by licensed structural engineers.
Following the collapse of the 12-story Champlain Towers building in Surfside, Florida in 2021, resulting in 98 deaths, Florida began implementing new apartment regulations. After the new regulations took effect, HOA fees have recently spiked. The state regulatory body mandated additional inspections and insurance requirements for over 1.5 million apartment units statewide.
Miami Redfin agent Cecilia Cordova believes that Florida apartment sellers are facing challenges, stating, “Since the tragedy at the Surfside building, apartment listings have continued to pile up, not only scaring off potential buyers due to legitimate safety concerns but also because of the increase in HOA and insurance fees due to apartment regulation changes.”
Redfin data shows that in the top 50 metropolitan areas in the U.S., 43 regions had more sellers than buyers, with Florida and Texas showing the most significant gaps. In August, San Antonio had nearly four times as many sellers as buyers, while Miami and Tampa had 251% and 241% more sellers than buyers, respectively.
The high insurance costs and HOA fees are causing potential buyers to be cautious, with 72% more sellers than buyers in August.