As potential homebuyers postpone the spring home-buying season, waiting for lower mortgage rates, some home sellers are lowering their asking prices. About 7% of sellers lowered their asking prices in June, the highest rate since November 2022. Redfin.
Homes sold below asking price in the spring for the first time since before the pandemic, but many buyers are still being shut out of the market by high prices.
In an overall sluggish market, rising mortgage rates and prices continue to weigh on buyer demand. Home sales fell 2.8% in May from a year earlier. National Association of Realtors.
The housing market is struggling to gain momentum, Odeta comb“Higher mortgage rates have a negative impact on both demand and supply, as buyers who lose purchasing power are forced to back out because they are priced out, and some potential sellers end up locked in at interest rates,” said Khushi, deputy chief economist at First American Financial Corp.
But some highly motivated sellers, especially in areas like Florida where property insurance has skyrocketed, are being flexible with their price offers to attract buyers, he said. Erin SykesChief Economist at Nest Seekers International.
As home price growth slows and housing inventory increases, buyers may finally have more options and find it easier to buy.
Could slower home sales this summer lead to lower home prices?
Spring and early summer often see an uptick in home sales as the weather gets warmer and the school year ends, making it a good time for families to move. But the past few years have not been as typical.
High mortgage rates and home prices have sent would-be home buyers into hibernation mode: Home sales have barely improved since last year and remain at a 30-year low, according to Lawrence Yun, chief economist for the National Association of Realtors.
The number of mortgage applications at the end of May was down 10% from last year, Mortgage Bankers AssociationHomeowners who need to sell their property quickly have little choice but to adjust their asking price to attract buyers.
This means the housing market may be slowly rebalancing after several years of turmoil. As homes stay on the market longer, inventory levels are gradually improving across the country, which could make the housing market a little less competitive for the remainder of 2024.
“It’s still a seller’s market, but it could become more balanced by the end of the year,” Yoon said.
While it’s not yet a buyer’s market, potential homebuyers have more negotiating power than they did a few years ago. Waivers of inspections and appraisals that were common during the pandemic probably won’t be needed. You may also see some flexibility when it comes to asking prices.
“Home prices have become more negotiable in recent months,” said Mr. Sykes, who said coastal markets in Florida and New Jersey are already seeing list prices become 5% to 10% more negotiable.
Factors affecting today’s housing market
Today’s housing affordability crisis is the result of a confluence of factors, including rising borrowing costs, rising home prices and limited housing supply.
Home loan interest rates are high
High mortgage interest rates have plagued the housing market for more than two years. At the beginning of 2022, the average interest rate on a 30-year fixed mortgage was nearly 3%. Since then, interest rates have risen significantly (topping 8% last fall) in response to rising inflation and a series of interest rate hikes by the Federal Reserve.
Mortgage rates averaged more than 7% throughout the spring, according to data from CNET sister site Bankrate. Here’s how rising mortgage rates affected the monthly payment on a $400,000 home with a 10% down payment.
| 30-year fixed mortgage rate | down payment | Monthly mortgage payments | |
| Loan A | 3% | Ten% | $1,851 |
| Loan B | 7% | Ten% | $2,728 |
Home prices are still soaring
Demand for homebuying has surged during the pandemic without a matching supply, resulting in regular bidding wars and home prices rising by more than 40%, according to the Housing Market Research Bureau. Zillow Home Value IndexSince then, price increases have slowed but have not reversed.
“Slight improvement in supply and demand, along with rising interest rates, have helped to moderate price increases,” he said. Keith GumbingerVice president of mortgage website HSH.com.
Housing shortage continues
Today’s high interest rate environment is exacerbating a nationwide housing shortage now in its 20th year. Most people looking to sell their homes are not willing to trade up for a new property with a higher interest rate because their existing mortgage interest rate is less than 5%. Lower mortgage rates would likely result in more homes coming onto the market.
Another piece of the inventory puzzle is new homes: Even though 2022 was the best year on record for new home construction, there is still a housing shortage of about 4.5 million homes, according to the report. Jiro.
What to expect from the housing market for the rest of 2024
There are many variables including mortgage rates, inventory, home prices, etc., and they are all interrelated.
The first domino to fall will likely be mortgage rates, which should improve as inflation eases and the Fed starts to cut rates later this year. Most economic forecasts project the average rate on a 30-year fixed mortgage to be between 6% and 6.5% by the end of 2024.
Lower borrowing costs will encourage more sellers to put their properties on the market, which should (ideally) lead to more new construction. This is already happening. 90% According to Black Knight, market inventory levels are improving compared to last year, with the largest increases seen across Florida, Austin and Denver.
Yoon expects home price growth to stabilize at around 2% to 3% annually as more homes are available on the market.
A sharp fall in mortgage rates would encourage many buyers to come off the sidelines, but it would not immediately end the housing shortage. In fact, home prices could spike again if buyers flood the market for limited inventory. Ideally, home prices and mortgage rates would move toward equilibrium at the same pace. However, this depends on a variety of economic factors. A slowdown in the labor market and a significant increase in unemployment could dampen demand for housing and drive prices down. Political policies could also play a role, especially with a general election scheduled for this year.
Should I wait to buy a house?
Buying a home is a big financial (and personal) decision, and many people aren’t sure if now is the right time. Asking a real estate agent whether you should wait or buy a home is an impossible question to answer.
Experts recommend against trying to time the housing market. It’s better to make decisions based on your own personal and financial circumstances. Here are some things to consider:
How’s your credit? The higher your credit score, the more likely you are to get a lower interest rate on your future mortgage — even a difference of just a tenth of a percent can save you tens of thousands of dollars in interest over the long term, making homeownership more affordable.
Do you have a steady income and job security? Without a steady income, it may be difficult to comfortably pay your monthly mortgage payment and other costs of homeownership.
How long do you plan to stay in the house? Home values tend to increase over time. The longer you live in your home, the more you benefit from the appreciation in value. Many homeowners use the equity they gain from paying off their mortgage and rising home prices to put towards a down payment on their next property.
Do you have an emergency fund? Before taking out a mortgage, experts recommend building an emergency fund that can cover several months of living expenses (including housing costs) in the event of a medical emergency or loss of job.
