Mortgage applications dropped an eye-opening 21% from a year earlier during the week ending August 19, according to a new report from Redfin, which said that home buyers and sellers are sharply pulling back from the market, making it tough in some areas to make a deal.
Pending home sales were down 17% from a year ago through August 21, the biggest annual decline since the start of the pandemic, according to the Seattle-based real estate broker.
At the same time, the median asking price of newly listed homes dropped 5% from the record high set in May, and sale prices dropped 6% from the record high set in June.
"Sellers are coming to terms with the fact that volatile mortgage rates have dampened demand," Redfin Economics Research Lead Chen Zhao said. "Some sellers are pricing lower, and some homeowners are staying put because they're nervous they won’t get a good offer or they're hesitant to give up their low mortgage rate."
“Because the number of homes for sale is no longer rising, buyers’ newfound bargaining power is reaching its limit,’” he said, adding that “there is a pool of interested buyers out there, but sellers need to price fairly to attract them. If more sellers and buyers find that middle ground on price, we could see sales strengthen a bit.”
Requests for home tours and other home-buying services were down 12% from last year during the week ending August 21, according to the seasonally adjusted Redfin Homebuyer Demand Index. Google searches of “homes for sale” were down 16% from August 20, but up 16% from a year earlier, Redfin said.
Mortgage volatility is partially to blame for buyer skiddishness, the firm said. Thirty-year mortgage rates rose to 5.55% in August. That’s down from a 2022 high of 5.81%, but up from 3.22% at the start of the year and 2.6% a year ago, the company reported.
While some potential buyers may be waiting for rates to fall back, the Fed has indicated that may not be happening in the near future. Federal Reserve Chairman Jerome Powell, in a much-anticipated speech in Jackson Hole, Wyo., today, said that the Fed must continue raising interest rates and hold them at higher levels if it plans to bring down inflation.
With price reductions as high as 70% in locations such as Boise, Idaho, sellers are flinching. As a result, the supply of homes for sale fell 0.6% from the previous four-week period–a slight decline, but the second such drop since February, Redfin reported.
New listings of homes were down 15% from a year earlier, the largest decline since May 2020, the company said.
Active listings (the number of homes listed for sale at any point during the period) fell 0.6% from the prior four-week period, the biggest decline since January 2022, although on a year-over-year basis, they rose 4.3%.
The dearth of homeowners listing their homes is partly a reaction to reduced demand and falling prices as there are fewer buyers in the market due to rising mortgage rates and economic uncertainty, the Redfin said.
Those sellers who are listing their homes “are starting to price in line with lower demand,” the company added.
The median home sale price was $371,125, according to Redfin. That’s up 6% compared to the year before. That means sale prices have dropped 6% after peaking in June, when the median home price was at $394,775.
On average, 7.7% of homes for sale each week had a price drop, a record high, but unchanged from the prior four-week period.