According to a new report from Redfin, a fast-growing share of home-sellers are dropping their prices, another sign that the early 2022 housing frenzy is starting to ease as mortgage rates approach 5%.
Approximately 12% of homes for sale had a price drop during the four weeks ending April 3, up from 9% a year earlier, and the highest share since early December. The rate of sellers dropping their prices is growing faster month-over-month than it has since August.
"Price drops are still rare, but the fact that they are becoming more frequent is one clear sign that the housing market is cooling,” said Redfin Chief Economist Daryl Fairweather. “It goes to show that there’s a limit to sellers’ power. There is still way more demand than supply, and buyers are still sweating, but sellers can no longer overprice their home and still expect buyers to clamor at their door. That’s because higher mortgage rates are eating into homebuyers’ budgets. As the cooldown continues to set in, it is important that sellers price their home carefully. Homes that sit on the market for several days have a scarlet letter that makes them more difficult to sell. Buyers should be wary of bidding significantly over asking on newly listed homes, and take a closer look at the homes that have been on the market for more than a week.”
Other early indicators signal that homebuyer demand is continuing to soften, especially in expensive coastal markets. Year-to-date growth in home tours measured by ShowingTime fell 3% compared to last year, when Easter briefly interrupted homebuying activities. Mortgage purchase applications fell 9% from last year and were down 3% from the prior week. Redfin’s seasonally adjusted homebuyer demand index, which measures requests for home tours and other service from Redfin agents, has been flat for the past month, further evidence that homebuyers’ pocketbooks are not a bottomless well.
“The slowdown over the last two weeks has felt significant," said Seattle-area Redfin real estate agent Dee Heyerdahl. "Usually April is when the spring homebuying and selling market begins to heat up, but this year things are cooling down a bit instead. Listings that a month ago would have had a dozen interested buyers touring in a single day now see less action than that in a whole week.
Heyerdahl continued, "Potential sellers are deciding to hold off in the midst of the market uncertainty. Homebuyers are telling us that they're disengaging from the market because they've been priced out of the market by both rapidly rising home prices and rapidly rising mortgage rates. That said, the market still feels very hot, and as things slow down it just means homes might only sell for a few thousand over asking price instead of hundreds of thousands and multiple offers will mean three or four instead of 30 or 40."
Key housing market takeaways for 400+ U.S. metro areas:
- The median home sale price was up 16% year over year to a record high of $384,500.
- The median asking price of newly listed homes increased 15% year over year to $399,675.
- The monthly mortgage payment on the median asking price home rose to a record high of $2,245 at the current 4.72% mortgage rate. This was up 32% from a year earlier, when mortgage rates were 3.13%.
- Pending home sales were up 0.1% year over year.
- New listings of homes for sale were down 4% from a year earlier, despite the Easter slowdown at this time in 2021.
- Active listings (the number of homes listed for sale at any point during the period) fell 22% year over year, but are slowly inching up from the record low levels seen in February.
- 59% of homes that went under contract had an accepted offer within the first two weeks on the market, an all-time high. This was up from the 55% rate of a year earlier.
- 45% of homes that went under contract had an accepted offer within one week of hitting the market, an all-time high. This was up from 42% during the same period a year earlier.
- Homes that sold were on the market for a median of 19 days, down from 27 days a year earlier.
- 52% of homes sold above list price, up from 41% a year earlier, and just shy of the all-time high of 54% seen in July of 2021.
- On average, 3% of homes for sale each week had a price drop, with 12% dropping their price in the past four weeks. Price drops are growing faster for this time of year than they have since at least 2015, with the four-week rate having increased 2.1 percentage points in the past month. Typically during this time of year price drops are flat month over month, with the largest increase before this year being 0.9 percentage points in 2019.
- The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, rose to 102.1%. In other words, the average home sold for 2.1% above its asking price. This was up from 100.4% in 2021.
Leading indicators of homebuying activity:
- Mortgage purchase applications decreased 3% week over week (seasonally adjusted) during the week ending April 1, and the unadjusted index was down 9% from a year earlier.
- For the week ending April 7, 30-year mortgage rates rose to 4.72%—the highest level since December 2018. This was up from 4.67% the prior week, and the fastest three-month rise since May 1994.
- Touring activity from the first week of January through April 3 was 3 percentage points behind the same period in 2021, according to home tour technology company ShowingTime. Note that in 2021 this period included Easter, which falls later in April this year.
- The Redfin Homebuyer Demand Index rose less than 1% from the previous week during the seven-day period ending April 3 and was up 9% from a year earlier.
To view the full report, including charts and methodology, click here [1].