Erin Sykes, chief economist at Nest Seekers International, weighs in on “The Bottom Line” as high interest rates continue to hurt the housing market.
The housing market may finally be shifting in buyers’ favor.
In a positive sign for homebuyers, the proportion of listings that were reduced in price in July jumped to 18.9%, up 3.4 percentage points from the same time last year and the highest level in two years. Report Published by Realtor.com.
It’s unusual for price cuts to occur in July, typically the peak home-sales month, but this year is different as sellers try to lure back reluctant buyers facing high costs and interest rates.
“First, interest rates remain higher than expected, reducing buyer activity,” says Ralph McLaughlin, senior economist at Realtor.com. “Second, the prospect of lower mortgage rates this fall may encourage some buyers to wait. This combined effect has prompted sellers to lower prices to attract more buyers.”
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The report also showed that the median home price fell to $439,950 last month, from $445,000 in June.
Homes in Centreville, Maryland on April 4, 2023. (Photographer: Nathan Howard/Bloomberg via Getty Images/Getty Images)
Of the 50 metro areas tracked by Realtor.com, a whopping 47 saw an increase in the percentage of price reductions compared to last year.
The cities that saw the largest increases in price reductions were Tampa, Florida (9.7%), Charlotte, North Carolina (9.5%) and Phoenix (9.4%).
“These areas have seen prices rise and sellers doing well over the past few years, but the full impact of rising interest rates is now taking hold, forcing sellers to bring their price expectations back down to reality,” McLoughlin said.
There are a variety of driving forces behind the rise in house prices.
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Years of under-construction created a nationwide housing shortage, then soaring mortgage rates and rising costs of construction materials made the problem worse.
A home in Hercules, California, on August 16, 2023. (David Paul Morris/Bloomberg 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 3% or less 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 System Even if they start cutting rates, they are unlikely to return to the lows seen during the pandemic.
Mortgage buyer Freddie Mac said Thursday Average interest rate for a 30-year loan It plummeted to 6.47%, the lowest level in more than a year – down from a peak of 7.79% in the fall but still significantly higher than its 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.
