‘We’re seeing buyers retreating’: Sellers cut home prices in response to weakening housing market

This is a chart that speaks thousands of words about the current state of the real estate market.

Top chart, part of A new report By real estate broker Redfin RDFN,
-6.29%
The property market reveals how home sellers are adapting to the new normal of 7% mortgage rates.

According to the graph, 7.9% of homes on the market saw price drops each week, a record high.

This compares with just 4% of homes seeing price reductions each week during the same period a year ago.

Redfin’s data dates back to 2015. The company averaged the share of discounted listings over four weeks to smooth out the outliers.

Taylor Marr, Redfin’s deputy chief economist, added that when looking at a longer period, or over a month, the company’s data shows that a quarter of homes are now declining in price. rice field.

“It’s never been this expensive,” Marr told MarketWatch in an interview.

Unlike buyers, who are sensitive to rising mortgage rates, “sellers are just slower to react to changes in demand…they set prices based on where they think the market is. [and] A lot of times they are reluctant to set the price low,” says Marr.

That makes prices a bit sticky for sellers and slows them down, he added.

But even if it took a while, it’s finally happening.

After all, mortgage rates are at their highest in decades, with 30-year rates steadily above 7% as of Friday afternoon. mortgage news dailyAnd it is likely to rise further, with 10-year government bonds TMUBMUSD10Y
4.149%,
tend to exceed 4%.

Meanwhile, the average price of a home on the market is over $367,000, up 7% from last year, according to Redfin.

According to the monthly mortgage on that house at the current interest rate of 6.92%. freddie macis $2,559.

A year ago, at an interest rate of 3.05%, your monthly payments would have been just $1,698.

Two tips for homebuyers struggling with high mortgage rates

Marr said sellers average 4-5% discounts.

“We would almost expect it to be worse,” he added, given that interest rates had risen sharply and purchasing power had fallen.

But buyers and sellers are also using two different tactics to ease mortgage rates somewhat, Marr said.

First, sellers are reaching out to buyers and offering concessions to lower mortgage rates.

In other words, the seller is asking the buyer to pay the full asking price, but is using part of it as a concession to offer a lower interest rate on the buyer’s mortgage.

“This is essentially a price drop,” said Ma. He added that it’s hard to see how this is playing out.

Ma explains that if a buyer pays $100,000 for a 20% down payment at an interest rate of 6.5%, they can instead allocate 10% to the down payment and use the remaining $50,000 of the purchase funds. Lower mortgage interest rates to 5%.

“5% isn’t that bad and may seem like a lot of money, but … it can give you incentives to refinance. [in the future] And then we have to pay the closing costs of that loan to refinance, which can be upwards of 15 grand,” Maher added.

Buyers are also switching to variable rate mortgages that offer lower interest rates at the start of the term. ARM is about 12% of all mortgage applications, The Mortgage Bankers Association pointed out Wednesday, which is high.

where prices are falling

As for where the prices are going down, a few places stood out for Redfin.

Home prices fell 3% year-over-year in Oakland, Calif., and 2% in San Francisco, they said. New Orleans also dropped him 2%.

“Even in Atlanta and Orlando, we’re seeing buyers retreat,” Marr said.

Therefore, with the background that sellers will eventually lower their listing prices, he advised that if you are a buyer now, don’t get upset by price increases and stop looking.

“There was an opportunity for interest rates to actually go down, giving buyers a chance to get back to lower-priced homes and get a good deal,” he said.

Furthermore, “I have no problem making lowball offers,” added Ma. “Some sellers are desperate and that could be a good strategy. I hear from some of our own agents that some buyers are getting incredible deals right now. increase.”

But if you need to rent for a year and wait for things to settle down, do it and put those savings together for that dream home.

Thinking about the housing market? Write to MarketWatch reporter Aarthi Swaminathan (aarthi@marketwatch.com).

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