U.S. Housing Report: Affordability Improves with Relatively Low Mortgage Rates, but Sales Stall as Prices Remain High

On August 8th, Freddie Mac reported that the 30-year fixed-rate mortgage decreased to 6.47%, the lowest level in over a year. However, on August 16th, Mortgage News Daily (MND) indicated that rates had risen again to 6.56%. This marks a 78-basis-point decrease from the 7.34% reported a year ago, though rates remain above the 6.34% low recorded on August 5th. 

CNBC data shows that rising mortgage rates are being driven by the increasing yield on the 10-year Treasury note, which is approaching 4%. Data presented in the August 15th Investing.com economic calendar also shows a decline in jobless claims, both initial and continuing, which further supports the strength of the economy. In addition, retail sales data for July exceeded expectations, suggesting that consumer spending is resilient, which could contribute to inflationary pressures and further rate hikes.

According to Keller Williams New York City Real Estate Associate Broker and Senior Global Luxury Specialist Maria Belen Avellaneda, “It’s likely that the number of sellers waiting on the sidelines for mortgage rates to improve will remain high for the rest of the year. There is a lot of speculation related to rates. Many homeowners may be hesitant to sell if they have locked in lower rates, especially if they’re concerned about affording a new mortgage at higher rates. However, if inventory remains low and demand continues, some sellers may be encouraged to enter the market, hoping to capitalize on favorable conditions despite the rates.”

Redfin’s report offers “encouraging signs” for buyers, with for-sale inventory up 20% YoY. Less than 30% of houses are now selling above the asking price, a significant drop from last year. However, pending home sales are still down 5.1% YoY, the largest decline since November, despite the increasing inventory. “Buyers who made their purchases when rates were around 2%–4% have very little incentive to sell their properties, so there are less resales,” says Avellaneda.

However, this is an improvement from the 6.2% decline in pending sales recorded during the prior four-week period. According to Redfin, despite falling mortgage rates, buyers remain hesitant to enter the market due to high prices, uncertainties surrounding the upcoming presidential election, and a possible U.S. recession.

On August 14th, the Mortgage Bankers Association (MBA) reported that mortgage-purchase applications rose 3% week-over-week (WoW), though they are still down 8% YoY. Redfin’s Homebuyer Demand Index also shows improvement, with demand down only 10% YoY, the smallest decline since April. Redfin’s Leading Indicators section in the report shows that Google searches for “home for sale” increased 11% from a month earlier but still down 3% YoY.

Redfin’s key housing market data section in the report highlights the four weeks ending August 11th, focusing on data culled from 400+ U.S. metro areas. This shows a median sale price of $389,250, a 3.4% YoY increase, but $6,750 below the all-time high set during the four weeks ending July 7th. The median asking price is $398,248, up 5.9% YoY, marking the largest increase since October 2022.

Key housing market data from Redfin shows a median monthly mortgage payment of $2,588 at a 6.47% rate, a 0.7% YoY increase but the lowest level since February and $244 below the all-time high set during the four weeks ending April 28th. Pending sales are down 5.1% YoY, the largest decline since November 2023, except the prior four-week period that experienced a 6.2% decline. However, new listings have increased by 4.5% YoY, and active listings are up 18.9%, indicating that while sales are declining, supply is increasing.

To further explore the implications of the current information, Redfin’s weekly housing market data shows that the median sale price (click on the applicable tab and interact with the graph) increased by 4% YoY, aligning with long-term historical averages, where home prices typically rise by 3% to 5%. The current median sale price is on par with this time last year, which also saw a 3% YoY increase. In contrast, the median sale price was up 7% YoY in 2022 and 16% YoY in 2021.

According to Avellaneda, “Flat median listing prices may be a signal of market stability and a better equilibrium between supply and demand. This could lead to an increase in buyer confidence. Especially, if listing prices remain flat while rates decrease, we can expect to see more sales.”

However, pending home sales are at a three-year low, and active listings have peaked earlier this year than usual. The market is showing signs of softening, with increased inventory and longer times on the market.

On a national level, examining the Redfin report highlighting the 50 most populous U.S. metros, Philadelphia, PA, Detroit, MI, Anaheim, CA, Newark, NJ, and New Brunswick, NJ have seen YoY median sale price increases of more than 10%. In contrast, Austin, TX, Tampa, FL, and San Antonio, TX have experienced price declines.

Pending home sales are up in San Francisco, CA (20.4%), Cincinnati, OH (10.4%), Sacramento, CA (10.2%), Los Angeles, CA (7.5%), and San Jose, CA (6.8%) but down sharply in Houston, TX (-20.6%), Atlanta, GA (-17.1%), Tampa, FL (-15.7%), Minneapolis, MN (-12.9%), and West Palm Beach, FL (-12.5%).

Metros with the largest new listings gains are Cincinnati, OH (20.7%), San Jose, CA (19%), Sacramento, CA (18.2%), Baltimore, MD (17.2%), and San Diego, CA (17.1%), while they declined in 11 of the 50 metros, including Atlanta, GA (-16%), Austin, TX (-5.4%), Chicago, IL (-3.9%), Portland, OR (-3.8%), and Nassau County, NY (-3.1%).

The Redfin graph shows that there are currently 3.6 months of supply available, the highest in three years. Homes are also taking longer to sell, with the median time on market now at 35 days. This trend has been consistent since mid-April, contributing to rising inventory levels.

According to Redfin’s graphs, 70% of homes are selling at or below the asking price, and 7% of listings have seen price drops, close to a record high (based on Redfin data that goes back to 2015). The average home is selling for 99.3% of its final listing price, meaning that over the past four weeks, homes have sold for 0.7% less than the seller’s final list price. This trend of homes selling for below their list price has been the case all year.

“Rising price reductions generally respond to market adjustments. Sellers are basically adjusting their expectations to the current market conditions,” said Avellaneda. “Ideally, if prices become more attractive, buyers will have the incentive to enter the market, potentially increasing the number of sales. Investors might also see price reductions as an opportunity to acquire properties at a discount, which could further increase competition in certain segments of the market.”

Redfin’s homebuyer demand index graph shows that requests for home tours and other homebuying services is down 10% YoY, a three-year low, though it has been increasing since mid-July. 

While the Redfin data does not suggest an imminent crash in the U.S. housing market, the market is clearly softening. Home prices remain near record highs, and new listings are increasing, yet home sales are not surging. Optimistic real estate professionals forecast the U.S. market may experience a greater recovery if the Fed lowers rates in September.   

“Yes, issues with housing affordability are contributing to homes spending more time on the market. As mortgage rates increase, many potential buyers are finding it challenging to afford homes, leading to reduced demand,” said Avellaneda. “This can result in properties lingering on the market longer as sellers adjust their expectations and pricing strategies. Overall, deals happen when both sellers and buyers adjust their expectations.”

In our next article, HAVEN will take a further look at the numbers: how the current U.S. housing market is reacting to prevailing economic factors influencing real estate.