Soaring Mortgages Cut Demand

HOUSTON – (By Dale King, Realty News Report) – Skyrocketing mortgage rates hiking payments to levels not seen in years is a major factor in a recent real estate market shakeup that includes a plunge in demand for homes along with a drop in some prices, says a just-released report from the Redfin brokerage.

Pending sales fell 6 percent, the firm’s analysis notes. That’s the largest year-over-year decline since June 2020 when the initial pandemic shock to the housing market was just wearing off.

Many buyers who haven’t yet been priced out by soaring housing costs have been rushing to snag homes before they become even more expensive. The number of residential sales consummated within one to two weeks has seen a dramatic increase.

In the meantime, says Redfin, the typical homebuyer’s monthly mortgage payment hit $2,427 at a 5.3 percent mortgage rate — a record high and up 44 percent from $1,685 last year when mortgage rates were 2.94 percent.

“Rising mortgage rates have taken a notable bite out of demand,” said Redfin Chief Economist Daryl Fairweather. “But still, homebuyers who remain in the market are facing stiff competition, especially for the most desirable homes. Given the lack of homes for sale, it would take a much larger drop in demand for buyers to really feel like the market has truly turned in their favor.”

The meteoric boost seen in home prices the past few years has begun to abate, says the company’s study. “The share of homes for sale with price drops shot up to a seven-month high of 16 percent during the four-week period [ending May 8] as early-stage homebuying demand as measured by Redfin’s Homebuyer Demand Index in the latest week fell 7 percent — the largest annual decline since April 2020.”

“We are seeing more price drops in recent weeks and homebuyers are starting to find some relief from competition,” said Salt Lake City Redfin real estate agent Rin Barrett.

“People who have been looking for a long time and were consistently getting beat out by other buyers are starting to get their offers accepted. They may be settling for a home that’s not in an ideal location or needs some work, but they’re happy because a few months ago even those seemed impossible to win.”

“However,” Barrett adds, “desirable homes in prime locations are still selling fast and for a premium, with no apparent slowdown so far.”

Leading indicators of homebuying activity, the report says, include:

Fewer people searched for “homes for sale” on Google. Explorations during the week ending May 7 were down 6 percent from a year earlier.
The seasonally adjusted Redfin Homebuyer Demand Index—a measure of requests for home tours and other home-buying services from Redfin agents — was down 7 percent year-over-year during the week ending May 8. It dropped 19 percent in the past four weeks, compared with an 11 percent decrease during the same period a year earlier.
Touring activity from the first week of January through May 8 was 30 percentage points behind the same period in 2021, according to home tour technology company ShowingTime.
Mortgage purchase applications were down 8 percent from a year earlier, while the seasonally adjusted index increased 5 percent week-over-week during the seven-day period ending May 6.
For the week ending May 12, 30-year mortgage rates increased to 5.3 percent—the highest level since June 2009.

The report tracked monthly mortgage payments back to 2015, when the payout each 30 or so days was $1,100. It remained about the same in 2016, rose to $1,224 in 2017, $1,275 in 2018, $1,375 in 2019, back down to $1,350 in 2020, $1,400 in 2021 and up to a record $2,427 this year.

The typical home for sale found a buyer in 15 days, the fastest pace on record, during the four-week period ending May 8, says Redfin’s analysis. This year, 42 percent of home sales are under contract in a week, compared to 41.5 percent last year and 24 percent in 2020.

This year, 56 percent of deals were completed within two weeks compared to 55 percent last year and just 33 percent in 2020.

Key housing market takeaways for more than 400 U.S. metro areas included in the Redfin report are:

The median home sale price was up 17 percent year-over-year—the biggest increase since August—to a record $397,356.
The median asking price of newly listed homes increased 17 percent year-over-year to $411,350, a new all-time high.
New listings of homes for sale were down 5 percent from a year earlier and have been down year-over-year for most of the time since September 2021.
Active listings (the number of homes listed for sale at any point during the period) fell 17 percent year-over-year.
Homes that sold were on the market for a record-low median of 15 days, down from 20.2 days a year earlier.
A record 57 percent of homes sold above list price, up from 48 percent a year earlier.

The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, rose to an all-time high of 102.8 percent. In other words, the average home sold for 2.8 percent above its asking price. This was up from 101.3 percent a year earlier.

For more on the Redfin report, Click Here.

Photo credit: Ralph Bivins, Realty News Report Coppyright 2022

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