With cooling buyer demand and high mortgage rates, more homeowners are holding off on selling their homes—hoping two things happen before they get it under contract:
- Mortgage rates will drop to a point where more people can afford to buy homes
- Homebuyers will flood the market and drive home sale prices up
With inventory still low, buyer demand is likely to start warming up. While the market is unlikely to see a return to the 2021 buying frenzy, these sellers may not be waiting on the sidelines for long.
Reason 1: Cooling Buyer Demand
According to data from Redfin on the four weeks ending August 21, new listings dropped 15% year-over-year—the steepest annual decline since the start of the pandemic.
As a result, the supply of homes for sale dropped 0.6% from the previous four-week period.
The reason? More buyers are seeing the evidence of a cooling market and deciding to hold off until conditions are more favorable.
Sellers still listing their homes are setting prices more in line with the cooling market demand. Asking prices have consequently dropped 5% from the record high set in May 2022, while sale prices have dropped 6% from the record high set in June.
To keep things in perspective, active listings are up 4.3% year-over-year.
Reason 2: Falling Home Prices
It’s not a good look when sellers have to drop their prices to attract buyers.
When sellers set realistic prices from the start, it reduces the number of properties with price cuts. And in today’s market, buyers aren’t driving the prices up as much. While many properties are selling at or a little above the asking price, the number of huge over-ask bids has shrunken compared to sale prices during the 2021 buying frenzy.
That said, the median sale price for a home for the week ending August 21st is 9.7% higher than it was a year earlier. This means home values are still appreciating.
Reason 3: High Mortgage Rates
While rates for a 30-year fixed mortgage are in the low 5’s — down from their high of 5.81% in June — they’re still high enough to keep many potential homebuyers out of the market. Fewer homebuyers mean fewer offers for sellers.
Another reason high mortgage rates deter sellers is that many have locked down low mortgage rates (around 3%) for their own homes.
Homeowners who don’t need to move aren’t willing to trade that low rate for one that would add hundreds to their monthly mortgage payment—especially with inflation already driving up the cost of gas, groceries, and other expenses.
Homebuyer demand is stabilizing
Due to low inventory, the cooling in homebuyer demand is temporary. Demand will likely increase, even if buyers don’t flood the market.
According to a Redfin report, home tours and requests for help from agents are up from their June lows and are holding steady. That’s a strong sign of interested buyers.
An uptick in demand will likely increase the gap between the listing price and the home sale price—as long as sellers price their homes fairly from the get-go.
Buyers and sellers both need to know what they’re facing in their local market. Keep current data within arm’s reach, so you can help each client make the best decision.
For those not ready to transact, make it your priority to continually follow up, especially if you see changes in the market that would benefit them.