Higher mortgage rates may soften demand this spring as worsening affordability prices more buyers out of the market. With mortgage applications down 6% from a year ago, sellers may need to be more realistic about how much they can ask for their property. An increasing number of listings are experiencing price reductions, climbing at the fastest pace since at least 2015, according to a new Redfin survey. Still, only 3.2% of homes on the market are seeing price drops.
“There really is a limit to homebuyer demand, even though the market over the past few years has made it seem endless,” says Daryl Fairweather, Redfin’s chief economist. “The sharp increase in mortgage rates is pushing more home buyers out of the market, but it also appears to be discouraging some homeowners from selling. With demand and supply both slipping, the market isn’t likely to flip from a seller’s market to a buyer’s market any time soon.”
The National Association of REALTORS® has forecast home sales to slip 10% in 2022, mostly due to rising mortgage rates that are pricing out more would-be buyers. However, NAR still predicts home prices to rise by 5% this year.
For first-time home buyers, the cost of buying the same home this year compared to just one year ago has jumped by 40%—a combined impact of higher home prices and mortgage rates. “There will be an inevitable slowdown in home sales,” Lawrence Yun, NAR’s chief economist, recently said in a statement. “Keep an eye on days-on-market and a decrease in multiple offers. Home sellers should not expect big, easy profit gains.”
Even with some early signs of cooling, the housing market remains elevated. Homes are selling at some of the fastest speeds ever, and price escalations on asking prices are still common, Redfin reports. Forty-five percent of homes that went under contract found a buyer within a week. Also, the average home sold for 2.4% above its asking price, Redfin notes.