Home sales appear to have hit a brick wall. The combination of near-record home prices and rising mortgage rates has drastically reduced home affordability.
But since early in 2023, home prices just about everywhere have continued to go up. Now, a new report from real estate brokerage company Redfin suggests home prices are beginning to come back to earth in more markets.
The report found that nearly 7% of homes for sale posted a price drop during the four weeks ending October 29, on average, the highest portion on record. In the background, mortgage rates hit their highest level in 23 years last week, cutting even more into what buyers can afford.
Rates have retreated a bit this week but are still elevated, considering the median home price is now over $350,000. But it may take some time for meaningful price reductions to appear in most markets.
'Bizarre' housing market
In spite of slowing sales, low inventory is propping up prices. The total number of homes for sale is down 10% year over year; new listings are up 1% from a year ago – just the second increase since July 2022 – but that’s partly due to new listings falling quickly at this time last year.
Redfin analysts – as well as many real estate agents – describe the housing market as “bizarre.” Sellers are dropping prices while the average home price continues to rise. Redfin agents describe a mismatch between sellers’ high expectations and the reality of buyers’ budgets, saying it’s more important than ever for sellers to price fairly from the start to attract buyers and sell quickly.
“Some sellers are pricing too high because they have FOMO (fear of missing out) after their neighbor’s house sold well over asking price two years ago,” said Seattle Redfin Premier agent Patrick Beringer. “While low inventory is driving some competition and relatively affordable homes in popular neighborhoods are still selling fast, they’re getting two or three offers as opposed to 20 offers at the height of the market. With mortgage rates in the 7.5% to 8% range, buyers simply don’t have the budget they would have had two years ago or even one year ago.”
Court verdict could be another hurdle
But if last month's federal court verdict against the National Association of Realtor (NAR) stands, home buyers could face another hurdle. A jury in Kansas City, Mo., found NAR and two major brokers liable for keeping sales commissions high and awarded damages of $1.8 billion.
In a normal transaction, the buyer’s agent and the seller’s agent split a 6% sales commission. The plaintiffs in the case said they shouldn’t have to pay the buyer’s agent and therefore the commission should be a lot less.
If the case stands, homebuyers will have to pay the real estate agent who represents them, adding to the cost of buying a home. But NAR President Tracy Kasper says the case is “not close to being final.”
“We will appeal the liability finding because we stand by the fact that NAR rules serve the best interests of consumers, support market-driven pricing and advance business competition,” Kasper said. “We remain optimistic we will ultimately prevail.”