As high home prices and rising mortgage rates weighed on the minds of would-be homebuyers, many got cold feet this summer – according to an analysis by Redfin.
In fact, almost 60,000 home-purchase agreements were canceled in August, marking an increase from 14.3% a year prior and the highest percentage hike since October 2022 – when mortgage rates rose above 7% for the first time in two decades, according to Redfin.
But mortgage rates are hovering around 7% once more despite the Federal Reserve’s pause to interest rate hikes in September.
“I’ve seen more homebuyers cancel deals in the last six months than I’ve seen at any point during my 24 years of working in real estate,” Jaime Moore, a Redfin Premier real estate agent in Reno, said in a statement. “They’re getting cold feet. “Buyers get sticker shock when they see their high rate on paper alongside extra expenses for maintenance, repairs and closing costs. Many of them would rather back out, even if it means losing their earnest money.
“A lot of sellers are also willing to let buyers slip away because they don’t want to concede to repair requests,” Moore continued.
The median sale price for a home was $420,846 in August, representing a 3% year-over-year increase, according to Redfin data. That signaled the most significant annual increase since October 2022. And home prices have remained elevated in part due to low housing availability. In fact, active listings declined 20.8% year-over-year in August.
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Home sales drop amid high mortgage rates
With some mortgage rates rising to more than 7% and average mortgage payments reaching an all-time high, home sales declined 13% from a year ago, according to a separate report by Redfin. And the total number of available homes for sale dropped 16% as home sellers keep tight grips on the low mortgage rates they secured earlier.
But the housing market has been getting a small pump this month.
“A few more home sellers have jumped off the sidelines,” Redfin said in its report. “New listings have stabilized, ticking up slightly since the beginning of September. They’re down 7% from a year earlier, but that’s the smallest decline since July 2022 (though it’s worth noting that new listings were falling rapidly at this time last year). It’s possible that some homeowners are taking advantage of rising home prices and low inventory, counting on being one of the only homes for sale in their neighborhood.”
Additionally, recent interest rate conditions have put a strain on homebuilding outlooks.
“Mortgage rates continue to linger above 7% as the Federal Reserve paused their interest rate hikes,” Freddie Mac Chief Economist Sam Khater said in a statement. “Given these high rates, housing demand is cooling off, and now homebuilders are feeling the effect. Builder sentiment declined for the first time in several months, and construction levels have dipped to a three-year low, which could have an impact on the already low housing supply.”
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Future rate hikes could boost mortgage rates
The Fed in its September meeting announced a pause in interest rate hikes after having raised rates 11 times to bring down inflation to 2%. But putting the brakes may not bring much resolution to would-be homebuyers as the federal funds rate remains at a 22-year high of 5.25% to 5.5%. And the central bank also hinted it won’t take future interest rate hikes off the table until it’s convinced that it’s close to reaching its goals.
“Inflation remains well above our longer run goal of 2%,” Fed Chairman Jerome Powell said at a press conference. “We’re prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we’re confident that inflation is moving down sustainably toward our objectives.”
Still, many experts believe the central bank could spike rates again before the year ends.
“The Fed’s updated outlook offered telling clues,” Realtor.com Chief Economist Danielle Hale said in a statement. “The 2023 year-end projection remains at 5.6%, meaning that another rate hike before year’s end is not only on the table, it is consistent with the median viewpoint.”
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