US house sellers are cutting prices for the first time in over a year
US home price cuts hit 18-month high as interest rates dampen demand
Mortgage rates climb above 7% as housing market stutters
Heritage Foundation economist Peter St. Onge offers his analysis on the housing unaffordability crisis on 'The Bottom Line.’
A growing number of home sellers are slashing their prices as they try to lure back lukewarm buyers who are facing both high costs and steep interest rates.
That's according to a new report published by Redfin, which found that 6.4% of sellers cut their asking price during the four weeks ended May 26 – the highest share since November 2022. The median asking price for a typical home on the market also fell by about $3,000 to $417,000, the first time that prices had decelerated in six months.
On top of that, the number of days active listings have been on the market started to rise in May for the first time in eight months, hitting a median of 46 days.
MORTGAGE CALCULATOR: SEE HOW MUCH HIGHER RATES COULD COST YOU
Together, the metrics suggest that sale-price growth could "soften in the coming months as persistently high mortgage rates turn off homebuyers," the report said.
Homes in Hercules, California, on Aug. 16, 2023. (David Paul Morris/Bloomberg via Getty Images / Getty Images)
While buyers received a modicum of relief on housing costs at the end of May – monthly housing payments dropped to a six-week low thanks to a modest decline in mortgage rates – many Americans are still paying a record-high amount to buy a house.
The median home sale price hit $390,613, according to the report, the highest level on record and a 4.3% increase from the same time last year.
There are a number of driving forces behind the affordability crisis.
WHY CAN'T YOU FIND A HOME FOR SALE?
Years of underbuilding fueled a shortage of homes in the country, a problem that was later exacerbated by the rapid rise in mortgage rates and expensive construction materials.
Photo of a home for sale in Huntington, New York, on Aug. 5, 2020. (Photo by Thomas A. Ferrara/Newsday RM via Getty Images / Getty Images)
Higher mortgage rates over the past three years have also created a "golden handcuff" effect in the housing market. Sellers who locked in a record-low mortgage rate of 3% or less during the pandemic began have been reluctant to sell, limiting supply further and leaving few options for eager would-be buyers.
Economists predict that mortgage rates will remain elevated for most of 2024 and that they will only begin to fall once the Federal Reserve starts cutting rates. Even then, rates are unlikely to return to the lows seen during the pandemic, with investors predicting just one or two rate reductions this year.
Mortgage buyer Freddie Mac said Thursday that the average rate on a 30-year loan rose slightly to 7.04%. While that is down from a peak of 7.79% in the fall, it remains sharply higher than the pandemic-era lows of just 3%.
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Most homeowners say they are nearly twice as willing to sell their home if their mortgage rate is 5% or higher, according to a Zillow survey. Currently, about 80% of mortgage holders have a rate below 5%.