Buyer Power Increasing in West Coast Markets

Limited inventory and rapid price appreciation have kept sellers firmly in the driver’s seat for several years as the United States recovered from the housing market collapse. Now, says Zillow Inc., Seattle, buyers are gaining more negotiating power as the housing market slows, especially in some of the nation’s hottest markets.

The Zillow Buyer-Seller Index reported in 20 of the 35 largest metros, market conditions favor buyers more than they did a year ago. California markets saw the biggest shift toward buyers since last January, led by San Jose, which has seen the most significant swing. San Francisco, San Diego, Los Angeles and Denver round out the top five markets where buyers will have an easier time navigating the market than they would have in recent years.

The report noted even though San Jose and San Francisco have cooled exceptionally, they are still the hottest markets compared to others around the country, markets where listings see few price cuts, homes don’t stay on the market for long and sale-to-list price ratios are higher.

“In these two Bay Area markets, home prices are so prohibitive, the typical buyer must put more than a 20 percent down to keep mortgage payments at or below 30% of monthly household income,” said Zillow Director of Economic Research Skylar Olsen. “San Jose buyers would need a 49 percent down payment, or $614,100, nearly three times as much as the national median home value.”

The report said buyers in San Francisco (43 percent), Los Angeles (43 percent) and San Diego (31 percent) would also need to put down more than 20 percent.

“It is no surprise that the markets which pushed the bounds of affordability over the housing recovery are now experiencing significant cooling,” Olsen said. “As down payments and mortgage payments far outpaced incomes, buyer demand eventually exhausted itself. Those buyers looking in cooling markets will likely welcome the relief, although the entry price is still high. Inventory is returning and spending more time on market, meaning their decision making can be made with a cooler head.”

Zillow said while hot markets slowed down over the past year, others have become more seller-friendly. Miami–which tends to see large fluctuations–saw the biggest overall shift toward favoring sellers over the past year, with homes selling about a week faster than they did a year ago.