As list prices drop, fewer buyers are booking tours and homes are selling more slowly, industry experts say. The once-scorching real estate market is finally cooling down after hitting record highs earlier this year, they add.
The latest data from major real estate companies show that prices are falling, and for the first time in more than a year and a half, homes are on average selling below their asking price. The companies expect the trend to continue.
“The average home sold for less than its list price for the first time in over 17 months during the four-week period ending August 28, as the housing market cooldown continued,” real estate website Redfin reported Sept. 1. “Every month since March of 2021 has seen an average sale-to-list ratio of over 100%, meaning that the average home has sold for more than its final asking price, after all price drops.”
Similarly, Realtor.com said in its August data report that “listing prices decelerated for the third month in a row, as more sellers hit pause on listing homes and homes for sale spent more time on the market than last August.”
The market wind-down comes after average home prices in the United States skyrocketed over the last two years as the country emerged from early COVID-19 pandemic lockdowns and the economy kicked into high gear. Home prices topped $440,000 earlier this year, according to federal data, more than $100,000 above pre-pandemic levels.
“In June, housing affordability plummeted to its lowest level since 1989,” the National Association of Realtors said in late August. “Accounting for a 30-year fixed-rate mortgage and a 20% down payment, the monthly mortgage payment on a typical home jumped to $1,944, an increase of 54%, or $679, from one year ago.”
The cooling market also comes as the country begins to see some relief from record-high inflation more broadly. This year, the Federal Reserve introduced a series of aggressive interest rate hikes in an attempt to curb swelling prices on everything from fuel to food — and shelter. As a result, mortgage rates increased as well, helping to drive the current real estate cooldown.
“Despite the easing in home prices, demand from homebuyers is still chilled — mortgage purchase applications and pending sales both saw large declines from a year ago — thanks in large part to another spike in mortgage rates, which rose to 5.66%, their highest level since June,” Redfin said. “Home sellers are also reluctant to step into the market: new listings and total inventory of homes for sale saw large declines as well.”
Last month, the “monthly mortgage payment on the median asking price home was $2,306” at that rate, “up 39% from $1,665 a year earlier, when mortgage rates were 2.87%,” Redfin said. Though still high, it’s “down from the peak of $2,461” in early June — the same month the Fed approved a rare rate increase of three-quarters of a percentage point as inflation was surging.
The real estate market showed initial signs that it was beginning to relax earlier this year after the Fed decided in March to increase interest rates for the first time since 2018. Between February and March, existing home sales fell 2.7%, NAR said.
That figure has continued to drop, NAR says. Its most recent research shows that for the sixth consecutive month, existing home sales dipped 5.9% between June and July and by more than 20% compared to the same time last year.
Meanwhile, pending home sales, which act as a “forward-looking indicator of home sales based on contract signings,” dipped by 1% in July, NAR said.
“In terms of the current housing cycle, we may be at or close to the bottom in contract signings,” Lawrence Yun, the group’s chief economist, said in a statement. “This month’s very modest decline reflects the recent retreat in mortgage rates. Inventories are growing for homes in the upper price ranges, but limited supply at lower price points is hindering transaction activity.”
As sales dip, homes are staying on the market longer, data show. “Homes that sold were on the market for a median of 26 days, up from 21 days a year earlier and the record low of 17 days set in May and early June,” according to Redfin’s August report.
Realtor.com also found that homes were taking longer to sell. “The typical home spent 42 days on the market this August which is five days more than last year and the first month that time on market increased since June 2020, during the early days of the pandemic,” the company’s experts wrote. Still, homes are selling quicker than they did before the pandemic, with homes spending “22 fewer days on the market this August than typical 2017 to 2019 timing.”
Several other signs point to less interest and activity from homebuyers in recent weeks as well. For one, fewer people are asking Redfin’s agents for home tours and related services, the company said. “The seasonally adjusted Redfin Homebuyer Demand Index … was up 15% from the 2022 low in June during the week ending August 28, but was down 16% year over year,” according to its report.
ShowingTime, a home tour company, also recorded less activity in recent weeks. Home tours in July dropped nearly 17% compared to the same time last year, according to the company’s showing index.
“The year-over-year dip in buyer activity follows a general market rebalancing that’s taking place across the country as available inventory increases while fewer buyers actively shop for homes,” the company said on Aug. 31. “Both factors have eased competition compared to last summer’s multiple-offer environment.
“The Northeast again saw the smallest dip in buyer demand in July, recording a 9.9% drop, followed by the Midwest’s 13.5% decrease,” the firm added. “The South’s 24.2% drop came next, with the West again claiming the largest year-over-year decline at 44%.”
Not as many people are searching online for available homes, either. “Fewer people searched for ‘homes for sale’ on Google,” Redfin said, citing the search engine’s data. “Searches during the week ending August 27 were down 26% from a year earlier.”
Though home costs are still higher than they were before the pandemic, analysts say this fall season will see some long-awaited relief for homebuyers who can afford the higher mortgage rates.
“Home prices are still rising by double-digit percentages year-over-year, but annual price appreciation should moderate to the typical rate of 5% by the end of this year and into 2023,” said Yun, NAR’s top economist. “With mortgage rates expected to stabilize near 6% alongside steady job creation, home sales should start to rise by early next year.”
Daryl Fairweather, Redfin’s chief economist, asserted that “while the cooldown appears to be tapering off, there are signs that there is more room for the market to ease.
“The post-Labor Day slowdown will likely be a little more intense this year than in previous years when the market was super tight,” she said in the August data release. “Expect homes to linger on the market, which may lead to another small uptick in the share of sellers lowering their prices. Homebuyers’ budgets are increasingly stretched thin by rising rates and ongoing inflation, so sellers need to make their homes and their prices attractive to get buyers’ attention during this busy time of year,” she added.
As the real estate market becomes less competitive, homebuyers will have more, and cheaper, options to choose from, according to Realtor.com.
“While fewer new listings are entering the market, overall inventory continues to grow, providing more choice to buyers who are still shopping for a home. Western markets lead other regions in increased inventory, price reductions, and deceleration of price growth,” the company’s economic experts wrote on Sept. 1. “This fall, a more moderate pace of homeselling, more listings to choose from, and softening price growth will provide some breathing room for buyers searching for a home during what is typically the best time to buy a home.”
