Weary homebuyers panicked by rising mortgage interest rates might be relieved to hear that this cruel twist comes with one big upside: lower home prices. In October, median home list prices continued to drop from June’s record high of $449,000 to $425,000, according to a recent report from Realtor.com.
While list prices are still up by 13.3% compared with a year ago, nearly one-fifth of those sellers slashed their prices in October, more than double the number who made price cuts last year.
These price reductions suggest that home sellers’ once lofty expectations of sky-high offers are at long last coming back down to earth. It might also mean that home sellers entering the market might list lower from the get-go. All of this should give fall and winter home shoppers a glimmer of hope that more affordable properties may be in the cards as we glide toward the holidays.
“Seasonally, home prices tend to cool through the end of the calendar year,” says Danielle Hale, chief economist of Realtor.com. “And I expect this year to follow that normal seasonal pattern.”
So why would skyrocketing mortgage rates drive down home prices? Because many buyers simply can’t afford those heftier monthly payments. Some no longer qualify for loans. Others – also contending with high inflation and a harsh economic landscape – have simply given up their home search, at least for now.
“We know that buyers in today’s housing markets are facing significantly higher costs – with the monthly mortgage payment for the median listing-price home up nearly $1,000 per month,” states Hale. “Many buyers cannot navigate the housing market in the face of these higher costs.”
That means sellers are receiving fewer offers on their properties and are having to cut prices, in many cases, to attract shoppers.
As demand wanes, the number of homes for sale is up – another signal that prices might continue to drop.
Properties are staying on the market and growing decidedly stale. There was a dramatic rise in the number of homes for sale in October compared with last year, as listings rose about 33.5% – which amounts to about 189,000 more homes to choose from on any given day.
Meanwhile, the number of new listings fell 15.9% year over year, and for good reason: Sellers are no longer eager to put their properties up for sale now that the peak of the market has passed.
Intrepid buyers who do make an offer are taking their time this fall, perhaps waiting out sellers in hopes they’ll keep dropping their prices.
The typical home spent 51 days on the market in September. That’s 20 more days than in May, when homes were snapped up in the shortest time on record since Realtor.com first began tracking this data in 2016.
Despite high interest rates, many people still need to purchase properties and are looking farther afield for deals.
“Shoppers are often looking in markets where housing is more affordable as a work-around for higher housing costs,” says Hale.
Homes for sale in the 50 largest metropolitan areas saw prices rise an average of 9.2% compared with last year. (Metros include the main city and the surrounding suburbs, towns, and smaller urban areas.) Some also saw a big increase in the overall number of listings.
“The West and South are surging in particular because these markets were some of the tightest over the past few years,” adds Hale. Therefore, every additional residence that hits the market matters.
In particular, there was a significant jump in the number of homes for sale in Phoenix (173.9%), which also saw the number of homes with price reductions hit 46.3%. Prices in the metro were up just 0.8% year over year, to a median $485,000.
Raleigh, N.C. and Nashville, Tenn. followed similar trajectories. Inventory in the two metros increased by 167.4% and 145%, respectively. While prices continued to rise year over year, about 27.1% of listings in Raleigh and 28.2% of listings in Nashville experienced price cuts.
However, well-priced homes with curb appeal in desirable neighborhoods are still selling quickly.
“I have a client relocating out of the Raleigh area for work, and he sold his house in five days last month with three separate offers,” says mortgage lender Matthew Ricci of Churchill Mortgage. “So, while list prices have dipped with the increase in interest rates, it’s still very competitive and well-qualified buyers will still see competition on appropriately priced homes.”
Image: Kostiantyn Li on Unsplash