- Redfin recently released data showing that more home sellers are lowering their asking prices.
- Demand for homes has been falling fast lately as mortgage rates reach 13-year highs.
- Home prices have been generally unresponsive to the recessionary forces at play, continuing to rise despite falling demand and sky-high borrowing rates.
With mortgage rates hitting a 13-year peak this week amid whispers of further interest rate hikes, the question on many potential homebuyers’ minds remains: When will the housing market cool down? According to recent data from Redfin, the housing market is already — or perhaps, finally — pricing in reduced home demand.
The housing market has been particularly stubborn this year. Lending rates have soared, mortgage applications have fallen more than 50% from last year and the Federal Reserve continues to hint at further interest rate hikes. Yet still, home prices have only grown this year.
However, it seems that signs of relief are here at last. According to Redfin’s data, for the month ending June 19, home listings with price drops from their original asking price hit a new all-time high. Home sellers seem to finally be responding to the slowly cooling housing market.
Daryl Fairweather, Redfin’s chief economist commented on the evolving housing market:
“With home prices still at record highs, the affordability crisis has been dialed up to an 11 out of 10. Home sellers are aware of this as well; a record share are dropping their asking price. Even though there are fewer home sales, prices have not declined any significant amount yet. But if the housing market continues to cool, prices could fall in 2023.”
When Will the Housing Market Cool Down?
The issue with home prices in the U.S. is fundamentally a supply and demand mismatch. There are simply not enough homes for sale to match the number of people looking to buy. As such, despite the slew of contractionary forces at play in the housing market, home prices have only continued to climb.
As such, Redfin’s data may offer some reassurance to home buyers that relief is indeed on the way. Thirty-year fixed mortgage rates are currently hovering over 6%, which immediately prices out a large number of Americans. Many buyers are unable to receive a loan at that rate or simply prefer not to make such hefty interest payments. As lending rates continue to rise, the falling demand for homes will only add to the downward pricing pressure.
The seller’s market is clearly slowing this year, with May sales down 8.6% from last year. Unfortunately, this may be a reflection of the profit-maximizing agendas of homeowners. During the pandemic, mortgage rates fell dramatically. Many sellers are happy to continue making rock-bottom interest payments while waiting for the demand to return, rather than lower their asking price.
A smaller supply of homes for sale only adds inflationary pressure to home prices. This is largely reflected in the median cost for an existing home, which passed the $400,000 threshold for the first time ever last month.
It’s unclear when the full effects of a cooled-off housing market will kick in. Rest assured, economists and would-be homebuyers will be watching home prices closely for any other signs of a pullback. Until then, Redfin’s recent data is a hopeful sign the housing market may come back down sooner rather than later.
Originally published on InvestorPlace.com
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.