Fewer of the homes are listed for sale have been swarmed by potential buyers, so houses are sitting longer before a sale. The average home listed for sale was on the market 34 days, compared to 22 for September 2022, according to Re/Max.
“The market is clearly turning,” said Lawrence Yun, chief economist of the National Association of Realtors, speaking at the same conference. “We have never seen mortgage rates rise this much in such a short duration of time going back to Paul Volcker in 1980.”
The average 30-year, fixed-rate mortgage, which was 3.05% a year ago, is now just under 7%, according to the Federal Home Loan Mortgage Corp.
That matters most to first-time buyers who will need to borrow most of a home’s purchase price, paying off the loan in monthly increments, said Lisa Sturtevant, chief economist for Bright MLS, which tracks the housing market. “The typical monthly mortgage payment is up 60% in the past year. That is really the most relevant metric.”
But it also matters to most sellers because they are typically planning to buy another home and, if they are not going to pay cash, the odds are their next mortgage would mean higher monthly payments than they have now, said economist Selma Hepp of Corelogic, which analyzes housing data.
“There is a lock-in effect,” she said. “About 95% of the existing mortgages are below 5%.”
That means fewer homes going on the market for sale, and that’s why the retreat of wannabe buyers has not tilted the market as much as it would otherwise. The median price of a home sold in September was still 14.4% above the price a year earlier.
There is still more demand for homes than supply, said Rick Sharga, executive vice president of ATTOM Data Solutions, another market analysis company. “People think interest rates go up and home prices come down. But what happens is that interest rates go up and home price appreciation goes down.”
If there are price drops, it will more likely be at the high end, where there are typically fewer buyers for expensive homes, he said. “I don’t think you’ll see price erosion at the low end or the middle tier of the market.”
In metro Atlanta a year ago, sellers received their asking price. But on average, sellers are seeing fewer buyers and less bidding for their homes, so they are typically getting less than their list price, according to Re/Max.
Even with a rapid slowdown in buying, the number of homes listed for sale — inventory — still represents only about 2.5 months of sales. That is less than half the ratio of a balanced market in which buyers and sellers have roughly equal power, experts say.
“Active inventory is still well below 2019 levels,” said Kristen Jones, broker and owner of Re/Max Around Atlanta. “The bottom line is there is still a massive shortage of homes and tremendous demand.”
The rising rates and slowing market are largely the result of the Federal Reserve’s campaign to stifle inflation by hiking short-term borrowing rates. The central bank has signaled a determination to keep at it, which likely means still higher rates.
And that means continued moderation of prices, said economist Danielle Hale of Realtor.com. “Sellers who overreach have to adjust.”