The period of the nonstop record-breaking growth of home prices is over—and it’s time for sellers to accept that reality. 

Around 15% of sellers dropped their listing price in every major U.S. metro in July, as buyer demand dried up and the number of homes on the market increased, according to the most recent discount data from Redfin.

“A lot of sellers are wanting to look backward,” said Tim Nelson, an agent with Willis Allen in La Jolla, California, an affluent town outside of San Diego, where two-thirds of closings in the last 30 days have sold at a discount from the original list price. 

“They want to think that their values are consistent with the market of three to six months ago, and we try to advise them that that ship has sailed,” he said.

The price cuts have been most prevalent in so-called “pandemic boomtowns,” where home prices have cooled quickly following months of demand spurred by the pandemic.

In Boise, Idaho, nearly 70% of homes for sale saw a price drop, the largest share of any major U.S. metro, and more than double the median percentage of price drops across the 97 metros surveyed (32.3%).

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Discounts are now most prevalent in:

The price cuts came as no surprise to many agents, who anticipated that increasing mortgage rates would slow demand for homes and subsequently reduce prices. The 30-year-fixed rate rose above 6% this month, from 5.28% in May and doubling from a year ago.

As inventory increases and home sellers face more competition, agents say they must think strategically about their offering price to ensure that they’ll avoid cuts while still attracting buyers.

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Many cities that saw the largest share of homes with price cuts also experienced a surge of in-migration during the pandemic, as remote workers sought out places with high quality of life and lower price points than California or the East Coast.

But they were some of the first markets to be hit by the overall slowdown in the housing market.

The average listing price of homes in Phoenix has gone down by 19% in the last year, said Bob Nathan, a broker with Engel & Völkers in North Scottsdale, a high-end suburb of Phoenix. Four months ago, there were only 3,500 homes available in Maricopa County—America’s fifth largest county, with a population of over 4.5 million. As of this week, there were nearly 20,000 homes for sale. 

As inventory increases, homes are no longer selling in a matter of days. Time on market has also gone up from an average of five days earlier this year to 27 now. Mr. Nathan anticipates that the average time on market could increase to 45 days by the end of the year. 

“The market is becoming more normal,” Mr. Nathan said. For sellers in Phoenix and markets like it, that means becoming “more realistic” about pricing expectations.

Pursuing a Less Aggressive Pricing Strategy

While sellers may be tempted to look at price comparisons from earlier this year, agents said that they should instead be looking at housing prices from before the market’s peak, from 2021 or even 2019.

“If you’re looking at the price per square foot for March or April, that number is going to be far higher than you’re going to be able to achieve for your house at this point,” said Katie Glaser, an agent with Smith & Associates in Tampa, Florida, which saw its share of homes with a price drop increase to 52.1% in July 2022 from 28.6% in July 2021.

Earlier this month, Ms. Glaser listed a unique lakefront home, the type of property that just months ago might have spurred a fierce bidding war. Though the sellers did receive multiple offers, the home sold for slightly over its listing. 

“I priced it right at market value,” Ms. Glaser said. Had she chosen a higher number, she said she may not have been able to close as quickly or with as many offers.

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Agents recommend that sellers focus on their competitors currently on the market, and choose a price that will make their property seem like a good deal among them.

That might give buyers the perception that other homes in the market are overpriced and generate more offers for the seller, Mr. Nelson said.

Even in a slowing market, agents say that getting multiple offers is still achievable—and it can help put the seller in a better position to negotiate terms of the sale upfront.

For sellers who may not be under pressure to sell right away, Mr. Nelson still advises not to be overly ambitious in pricing. “You don’t want to go on a fishing expedition at a price that’s not justifiable,” he said. 

Liza Hogan, a broker with Douglas Elliman in Denver, said that sellers who haven’t been able to get a satisfactory offer within 20 days should consider a price reduction.

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“If you don’t get full price over the first few days, then you’re not getting it,” Ms. Hogan said.

She has reason to be pessimistic. For the first time in two years, the closing price to list price ratio dropped below 100% to 99.41% in the Denver metro area. The number of closings dropped by 31% from August 2021 to August 2022, she said.

For buyers, these price drops come as a relief. They may also signal that the sellers may be willing to accept certain contingencies like an appraisal objection or home inspections that would have been unthinkable at the market’s peak.

In areas like Denver and Phoenix, sellers are starting to offer buyer incentives as a way to avoid reducing their price.

In some cases, sellers will offer a mortgage buydown, in which they offer cash to help lower the borrower’s interest rate for a certain period, resulting in a lower monthly payment and making the home more affordable to the buyer, Ms. Hogan said.

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While that means the seller may end up losing some money, it may not be as much money as they would lose by reducing the price on the home, she noted. 

Other sellers may offer to make prepayments on monthly homeowner’s association fees in order to bring down the initial cost for the buyers.

In Denver, the average amount of incentives offered by a seller has increased from $3,700 to $5,000 in the past year, Ms. Hogan said.

“As the competition to attract buyers heats up, sellers are more willing to look at these things,” Ms. Hogan said. “By offering concessions, sellers can increase the number of buyers interested in their home.” 

Jessica Northrop, an agent with Compass in Denver, said more prevalent discounts don’t mean the market has turned completely in the buyer’s favor, at least in the popular Colorado city.

“It’s still a seller’s market,” Ms. Northrop said. “But sellers have to expect they can’t just put a sign in the yard and get 10 offers.”

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