Persistent high mortgage rates continued to give homebuyers sticker shock in August, says a new report from Redfin, which shows residential real estate deals fell through at the highest rate in almost a year.
Nationwide, nearly 60,000 home-purchase agreements were canceled in August, equal to 15.7% of homes that went under contract that month. That’s up from 14.3% a year earlier and marks the highest percentage since October 2022, when mortgage rates surpassed 7% for the first time in two decades.
The average interest rate on a 30-year-fixed mortgage was 7.07% in August. At one point last month, it hit 7.23% – the highest since 2001 – sending the typical homebuyer’s monthly payment up significantly from last year.
“I’ve seen more homebuyers cancel deals in the last six months than I’ve seen at any point during my 24 years of working in real estate. They’re getting cold feet,” says Jaime Moore, a Redfin real estate agent in Reno, Nev. “Many of them would rather back out, even if it means losing their earnest money.”
The median U.S. home sale price rose 3% year over year to $420,846 in August, the largest annual increase since October 2022, and was little changed (-0.2%) from a month earlier. It was 2.8% below the May 2022 record high of $432,780.
Activity in the housing market is sluggish due to rising mortgage rates, but prices remain high because the buyers who are out there are competing for a limited number of homes.
“Home prices will likely remain elevated for the foreseeable future,” says Chen Zhao, Redfin economics research lead. “The Federal Reserve still has more work to do in its battle against inflation, which means mortgage rates are unlikely to come down anytime soon.
Home prices also posted a year-over-year gain in August due to the “base effect” from a year earlier; in August 2022, prices had recently started descending from their record high, which is contributing to the size of year-over-year increases we’re seeing now.
Pending sales declined 0.6% from a month earlier in August on a seasonally adjusted basis, and fell 18.1% year over year. While they’re no longer falling as rapidly as they were earlier in 2023, pending sales remain below pre-pandemic levels. They’ve been hovering below 400,000 since the end of last year, compared with nearly 500,000 just before the pandemic.
Pending sales have stabilized as the initial shock of elevated mortgage rates has moved further into the rearview mirror, but high housing costs are still keeping many buyers on the sidelines.
The total number of homes for sale hit a record low in August, falling 1.1% month over month on a seasonally adjusted basis and 20.8% year over year – the largest annual decline since June 2021.
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