Heritage Foundation economist Peter St. Onge provides analysis of the housing affordability crisis on “The Bottom Line.”
A growing number of home sellers are slashing prices in an attempt to lure back buyers faced with high costs and interest rates.
That’s according to a new report released by Redfin, which found that 6.4% of sellers reduced their asking price in the four weeks ending May 26, the highest percentage since November 2022. The average asking price of the typical home on the market also fell by about $3,000 to $417,000, marking the first price decline in six months.
Additionally, in May the number of days properties were on the market began to increase for the first time in eight months, reaching a median of 46 days.
Mortgage calculator: See how much rising interest rates will cost you
Taken together, these indicators suggest that sales price growth may slow in coming months as persistently high mortgage rates scare off homebuyers, the report said.
A home in Hercules, California, on August 16, 2023. (David Paul Morris/Bloomberg via Getty Images/Getty Images)
Homebuyers received some relief on their housing costs at the end of May, with a small decline in mortgage rates helping to lower monthly mortgage payments to their lowest level in six weeks, but many Americans are still paying record highs for their homes.
The median home sale price hit $390,613, a new record high and up 4.3 percent from the same time last year, according to the report.
There are a variety of driving forces behind the rise in house prices.
Why can’t I find any homes for sale?
Years of under-construction created a nationwide housing shortage, then soaring mortgage rates and rising costs of construction materials made the problem worse.
A photo of a home for sale in Huntington, New York, on August 5, 2020. (Photo by Thomas A. Ferrara/Newsday RM via Getty Images/Getty Images)
Rising mortgage rates over the past three years are also creating a “golden handcuff” effect on the housing market: Sellers who locked in record-low mortgage rates of less than 3% at the start of the pandemic are becoming reluctant to sell, further restricting supply and leaving eager would-be buyers with few options.
Economists predict mortgage rates will remain high for most of 2024, then Federal Reserve Still, interest rates are unlikely to return to the lows seen during the pandemic, and investors expect only one or two rate cuts this year.
Mortgage buyer Freddie Mac said Thursday Average interest rate for a 30-year loan It rose slightly to 7.04%, down from a fall peak of 7.79% but still significantly higher than the pandemic-era low of just 3%.
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A majority of homeowners say they would be nearly twice as willing to sell their home if their mortgage interest rate was 5 percent or higher, according to a Zillow survey. Currently, about 80 percent of mortgage holders have interest rates below 5 percent.
