Housing in the U.S. is finally beginning to cool off, as higher mortgage rates begin to push more buyers out of the market. But competition is still much higher than it was pre-pandemic, and bidding wars continue to erupt in some of the country’s most expensive housing markets.

For most of the past two years, the inventory of available housing has been sitting at a historic low. Buyers flooded into the housing market in the pandemic’s early days, taking advantage of low mortgage rates and new remote work options. This massive influx of new homeowners severely depleted the supply of homes for sale in the U.S., and inventory has never fully recovered.

Although those mortgage rates are a lot higher now—up to 5.11%, from 3.04% in April 2021, according to Federal Reserve data—demand for a limited supply has stayed elevated.

Early signs show that higher mortgage rates are beginning to deter potential buyers from entering the market, as competition for housing is starting to ease slightly. But some markets remain highly competitive, and bidding wars aren’t over yet.

Less competition at last

The rate of competition for new homes—measured as the number of listings that attract more than one competing bid—fell slightly to 65% in March from nearly 67% in February, according to a new report by online real estate firm Redfin. It’s the first month-over-month decline the company has observed since September.

Less competition is a key indicator that the housing market is beginning to cool off. Home prices rose 19.2% between March 2021 and March of 2022, leading average home prices to hit a record high.

The Fed has been progressively raising interest rates since March to counter runaway inflation, and the nearly 20% increase in home prices eclipses the 8.5% price increase for other commodities observed in April.

Less competition indicates that the Fed’s strategy is working, but a 2% decrease in competitive listings is not a sea change, and does not necessarily mean lower housing prices in the near future.

Bidding wars are still here

Higher interest rates on mortgages should mean fewer buyers, and therefore less competition in the market driving up home prices.

But while demand for homes is falling, inventory also remains low, and the supply of homes for sale is still well below the pre-pandemic norm.

In April 2020, only 41% of listings ended up in bidding wars, compared to the 65% of home offers facing competition today.

And even though the national bidding war rate is showing the first signs of cooling seen in months, competition is still running rampant in some specific housing markets. Several U.S. cities where home prices are rising the most—such as San Jose and Boston—are seeing competition rates above 75%, according to Redfin. And many of these more expensive housing markets are bucking the trend and actually seeing an increase in bidding wars, not a decline.

Austin has seen the biggest bump in housing competition over the past year, up over 21%. Competition for housing in San Antonio also went up nearly 16%, while in other cities—including Boston, San Jose, and Miami—the frequency of bidding wars went up more than 6%.

Easing competition nationwide is a positive sign that the housing market is beginning to cool and prices might soon begin to decelerate. But without a larger inventory of houses on the market, it is unlikely that the frequency of bidding wars emerging will return to a pre-pandemic normal.