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After weeks dragged on and home prices slid further, Redfin analysts spotted something unexpected.
Sale prices unexpectedly reversed course over the last couple of weeks, rising by 1 percent since the start of September and defying expectations for a market where mortgage rates had only recently shot back above 6 percent, according to a new report from Redfin. Applications for purchase loans even ticked up slightly in the week ending Sept. 16, according to the Mortgage Bankers Association.
It’s an unusual dynamic that one of Redfin’s top economists says smacks more of a “new weird” than a new normal.
“The impact of the Fed’s inflation-curbing strategy is seen clearest in the housing market as prospective buyers take a big step back, slowing sales,” Redfin Deputy Chief Economist Taylor Marr said in the report. “The irony is that it may take renewed fears of a recession to bring buyers some relief in the form of lower prices.”
One of the key culprits? Look no further than the decline of new listings coming online, down 20 percent year over year in the four-week period ending Sept. 18.
“[Since] the vast majority of homeowners who might consider moving have a mortgage rate far below current levels, there’s very little new supply hitting the market,” Marr said in the report. “As a result, home sale prices have picked up in recent weeks, and the typical buyer’s monthly mortgage payment is just a few pumpkin spice lattes shy of its all-time high.”
Still, as fast as new listings have dropped over the past year, demand for homes has dropped faster. It’s an environment that’s helped replenish the nation’s once-depleted inventory of active listings back to 2.8 months worth of supply.
Traditionally, 2.8 months of supply is seen as a market that heavily favors homesellers. But compared to the bare-bones inventory of the early pandemic, homebuyers have more negotiating power than they’ve experienced in years.
As the balance of power has shifted so rapidly away from homesellers, more of them have also had to reduce their asking prices. More than 7 percent of homes for sale each week had a price drop, nearly double the share at the same time last year.
Homesellers appear to be facing increasingly tough decisions across the country as their homes continue to sit for longer unsold. In the four weeks ending Sept. 18, half of sold homes spent at least 29 days on the market. In May and early June, half of sold homes spent 17 days or fewer on the market.
The Redfin report recommended that homesellers get ahead of the market with their pricing, rather than reaching for higher asking prices that might have worked in the past.
“Those who do choose to list their homes have lost the upper hand their neighbors enjoyed when they sold last spring and should price accordingly,” the report reads.