Across the country, home sellers are seeming to be backing out of the market because of higher mortgage rates and reduced buying demand. Buyers are pulling back, and at the same time, would-be sellers aren’t actually selling.
The result? A housing market that’s very much cooling.
Some buyers are still looking for homes in areas where they feel like they can be competitive with their offers, but the limited supply of homes for sale is putting those would-be buyers in a position where they seem to be stuck renting.
Simultaneously, renters are feeling tremendous pressure. According to a new report from Redfin, the median national asking rent price was up 11% year-over-year at $2,039.
It’s the smallest gain in a year, but it still shows that some people who would be homebuyers are still affecting the rental market, and renters are taking on the burdens of higher prices.
High home prices are continuing, and there’s also been a surge in mortgage rates. The 30-year fixed rate hit 6.70% recently. Potential buyers are facing the worst affordability levels in 37 years, so they’re pushing pause on their search.
In August, pending home sales fell 2% more than expected. That was the third straight month of declines; year-over-year, pending sales were down by more than 24%.
Then, we have to go back once more to the inventory issue. The inventory as mentioned, is extremely limited, especially regarding the price range for starter homes. The housing market is underbuilt, and there are historically low levels of houses available. On the flip side of this, home price growth has been slowing for four consecutive months, despite continuously elevated home values.
Analysts and real estate experts say that the slowing in home price growth will be welcome news for buyers, even as they are dealing with many headwinds. The house price growth has been continuously in the double-digits, which experts say is an exception, not a rule.
In the coming months, the market will likely see a deceleration in home prices to something more reasonable.
The historical rate of home price increases has typically been in the 4-5% range. Mortgage rates are also in line with historical averages, as much as they might not feel that way.
Many homeowners are reluctant to sell now because they don’t want to lose their historically low mortgage rate. According to current data, 51% of homeowners have a rate under 4% as of April this year. Mortgage rates are significantly higher now, but when people decide it’s time to sell, it’s usually for factors other than financial considerations.
A recent survey showed that the main reasons homeowners are selling right now include:
- Wanting different features or amenities in a home
- Their home no longer meets their current needs
- Wanting a home office for work
- The desire to be closer to loved ones
- Owning a smaller home that requires less maintenance and upkeep
- They don’t need to live close to their office anymore
When sellers want a home that better meets their lifestyle, they may be willing to deal with higher mortgage rates to get it. It’ll likely be those sellers throughout the rest of 2022 that impact home inventory and availability because mortgage rates don’t look like they’re going anywhere but up, at least in the short term.