- The U.S. real estate market is starting to offer some rays of sunshine to potential homebuyers.
- According to Altos Research, inventory is growing at a time of year when declines typically occur.
- And Redfin reported that more home sellers are lowering their asking prices.
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A glimmer of hope is now emerging for U.S. homebuyers who have been largely priced out of the market by rising prices and a widespread supply shortage.
This is happening because the real estate market is stalled and sales activity is stalling as high interest rates discourage buying and selling. In fact, the situation is so dire that Redfin CEO Glenn Kelman recently declared that the market had hit “rock bottom.”
However, some indicators could give cause for some optimism.
Housing construction has continued to increase supply, causing the country’s housing stock to continue to grow in a season that has historically seen declines. Inventories rose 1.8% in the final week of September compared with the previous week, Altos Research said, but warned there were no signs of an imminent inventory glut.
“It’s late summer, so new listing volumes are typically down and the last sales of the peak summer months are coming to an end,” the real estate data company wrote. “The fact that inventory levels rose nearly 2% this week and last is a telling indication of how homebuyers are responding to the highest mortgage rates in over two decades.”
More specifically, the 30-year mortgage rate reached its highest level in 23 years and continued to rise above 7%. The rise in borrowing costs has been a key factor in keeping supply low, as homeowners who have financed at much lower interest rates are reluctant to give up and move out.
High interest rates and rising prices have also contributed to worsening home affordability. But there are also signs that prices could fall.
Altos said more homes on the market have seen a price reduction from their original list price, bringing the current share to 37%, which is higher than what a normal, balanced market would typically see.
Meanwhile, a separate report from Redfin also said more home sellers are lowering their asking price. In the four weeks ended Sept. 24, 6.5% of U.S. homes for sale saw prices decline, up from 5.8% in August.
“It’s still difficult to win a home at a lower price, but sellers have come to terms with the fact that mortgage rates above 7% are giving buyers cold feet and that homes are not as likely to attract multiple offers.” says Redfin said.
In the existing home market, sellers are increasingly open to negotiating the asking price or making concessions, such as financing home repairs or buying back at mortgage rates.
Property developers are now also adapting to market conditions and also offering smaller properties or installment purchases.
As we enter the fourth quarter, sellers may need to open themselves up to further price cuts as expectations of an impending rate hike by the Federal Reserve could only increase mortgage rates.
“The feeling for buyers right now is this: For the interest rate I’m paying, this house better be exactly what I want, or the price better be more negotiable,” Redfin agent David Palmer said in the firm’s report.