Slowdown in U.S. housing market means buyers can start haggling again
After a crazy two-year run, the U.S. housing market is in a slowdown, with home sales seeing their biggest drop since the pandemic, dipping to levels not seen since April 2020.
And according to a market report by Redfin, it's probably going to stay that way through the end of 2022.
The drops include pending home sales and new home-for-sale listings: Pending sales were down 32 percent year over year, the biggest decline since April 2020; new listings were down 19 percent from a year earlier, the biggest decline since May 2020.
Mortgage applications also dropped to their lowest level in 25 years, according to the Mortgage Bankers Association.
The reason: Mortgage rates have risen to nearly 7 percent, the highest they've been in 20 years - leaving houses to sit on the market while buyers wait for the rates to drop.
"The U.S. housing market is at another standstill, but the driving forces are completely different from those that triggered the standstill at the start of the pandemic," says Redfin researcher Chen Zhao. "This time, demand is slumping due to surging mortgage rates, but prices are being propped up by inflation and a drop in the number of people putting their homes up for sale. Many Americans are staying put because they already relocated and scored a rock-bottom mortgage rate during the pandemic, so they have little incentive to move today."
Homes are taking twice as long to sell as they did in the spring, forcing sellers to drop their asking price. The typical home is selling for 1 percent less than its final asking price – the biggest discount since August 2020.
“With rates sitting above 6.5% for three weeks and no indication they’ll come down before the end of the year, people are only buying and selling homes if they need to,” Zhao says.
Some of the data Redfin used to calculate the slump, covering the four-week period ending October 16, includes:
- Fewer Google searches for "homes for sale" - down 32 percent from a year earlier.
- Touring activity was down 25 percent from the start of the year, compared to an 8 percent increase at the same time last year, according to home tour technology company ShowingTime.
- Mortgage purchase applications were down by 4.5 percent to their lowest level since 1997.
There are now more houses on the market. Months of supply rose to 3.1 months - the highest level since June 2020. Austin saw the largest increase in the number of homes for sale, up 41.4 percent year over year.
And homes that sold were on the market for 34 days, up more than a full week from 26 days a year earlier and the record low of 17 days set in May and early June. Typical time on market has steadily increased since June.
Nearly 8 percent of homes for sale in mid-October had price drops, and only 30 percent of homes sold above final list price - down from 44 percent a year earlier and the lowest level since August 2020.
Zhao says that homes will eventually sell, but it may take a few months, and suggests that buyers can go back to negotiating the sale price, which would have been unheard of just a few months ago.