Elevated mortgage rates are cutting into homebuyers’ budgets. But this week’s inflation report—which shows that consumer prices are cooling quickly—provides a glimmer of hope that mortgage rates could gradually start to come down.
The median U.S. home-sale price rose 1.5% from a year earlier during the four weeks ending July 9, the first increase in nearly five months. That’s according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.
Average weekly mortgage rates are at their highest level since November 2022, bringing the typical homebuyer’s monthly payment to a near-record-high of $2,627.
To look at the hit on affordability another way, a homebuyer on a $3,000 monthly budget can afford a $450,000 home with today’s average rate. That buyer has lost $30,000 in purchasing power since February, when they could have bought a $480,000 home with that month’s average rate of around 6%. The drop is more extreme when compared to a year ago, when a $3,000 monthly budget would have bought a $510,000 home at a rate of about 5.3%.
Prices are rising despite relatively low demand because there are so few homes for sale. New listings are down 27% year over year, the biggest drop since the start of the pandemic, and the total number of homes on the market is down 14%, the biggest drop since March 2022. That’s mostly because potential sellers are locked in by low rates; nearly all homeowners have a rate below 6%.
On the bright side, this week’s economic news provides a glimmer of hope for the housing market. The latest consumer-price index report shows that inflation cooled more than expected in June, largely because it has started reflecting months of cooling housing costs.
“This month’s inflation report is likely to bring mortgage rates down a bit from their recent highs. It shows that the Fed’s interest-rate hikes are working and increases the chance they’ll only hike rates one more time this year,” said Redfin Economic Research Lead Chen Zhao. “Because elevated mortgage rates are responsible for both of today’s major homebuying challenges—high monthly housing payments and low inventory—any decline is welcome news for buyers. But even though rates will come down slightly, they’ll likely remain well above 6% until the Fed sees several more months of inflation readings closer to their target.”
Leading indicators of homebuying activity:
Key housing market takeaways for 400+ U.S. metro areas:
Unless otherwise noted, this data covers the four-week period ending July 9. Redfin’s weekly housing market data goes back through 2015. For bullets that include metro-level breakdowns, Redfin analyzed the 50 most populous U.S. metros. Select metros may be excluded from time to time to ensure data accuracy.
To view the full report, including charts, please visit: https://www.redfin.com/news/housing-market-update-home-prices-rise-first-time-five-months
NEW CFA REPORT DOCUMENTS THE COSTS TO THE INDUSTRY AND CONSUMERS
Today the Consumer Federation of America (CFA) is releasing a new report – “A Surfeit of Real Estate Agents: Industry and Consumer Impacts” – that uses industry sources to document the costs to industry and to consumers of too many residential real estate agents. More than 1.5 million residential agents (including brokers) compete for home sales usually totaling 5 to 6 million annually.
Those costs include:
“A large majority of practicing real estate agents have recently received their license or work part-time,” said Stephen Brobeck, a senior fellow at CFA. “These agents usually charge the same commission rates as experienced, full-time agents yet in general offer worse service and deprive experienced agents of needed clients.”
In examining home sales in three cities – Jacksonville (FL), Minneapolis (MN), and Albuquerque (NM) – the study found that marginal agents (with five or fewer sales a year) received an estimated 25-30 percent of commission income. According to data collected by the industry from Realtors in 2021:
The report documents complaints by many experienced, full-time agents of the incompetence and/or inattention of other agents that also harm consumers. And it emphasizes that because of the “surfeit of agents,” real estate agents and brokers feel financial and/or peer pressure to keep commission rates relatively high.
“Without 5-6 percent rates, even fewer agents would survive financially in today’s marketplace,” said CFA’s Brobeck. “Ironically, relatively high rates attract new entrants into the industry, increasing competition for clients and reducing individual income for all.”
The report raises the question of whether the industry should make greater efforts to ensure the competence and commitment of new agents. Such efforts could include more stringent entry requirements and required mentoring of new agents. A future CFA report will address in depth these two issues.
To help ensure selection of a competent, conscientious agent, CFA recommends not only consulting friends and family but also reviewing information about agents on Zillow and Realtor.com. CFA’s Brobeck said: “Look especially for information on recent sales experience and customer comments that are detailed and positive.”
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