Mortgage rates pulled back this week, but economic uncertainty continues to keep price-struck buyers at bay.
The rate on the 30-year fixed mortgage edged down to 5.13% from 5.22% the week prior, according to Freddie Mac. While the rate remains lower than the 5.81% registered in June, it’s still nearly 2 percentage points higher than the start of the year.
The slight decrease in rates does little to relieve price-rattled homebuyers who are facing newfound recession fears, in tandem with tight inventory levels and declining affordability. The buyers that remain in the market have discovered newfound “bargaining power” as home sellers stung by inflation are more willing to price down listings to close a deal.
“Inflation appears to be beyond its peak, which has stopped the rapid increase in mortgage rates that the housing market was experiencing earlier this year,” Sam Khater, Freddie Mac’s chief economist, said in a news release. “The market continues to absorb the cumulative impact of the large price and rate increases that led to a plunge in affordability.”
Khater added that as a result, “over the rest of the year purchase demand will likely continue to drag, supply will modestly increase, and home price growth will deteriorate.”
Less confidence
The once red-hot housing market has cooled off before summer’s end.
Demand for mortgages hit its lowest point since 2000, according to the Mortgage Bankers Association survey for the week ending August 12, as many would-be buyers have been spooked by skyrocketing prices and higher rates. The volume of purchase applications fell 1% from the previous week and was 18% lower than the same week a year ago.
This follows a less-than-optimistic housing confidence report by Fannie Mae, which revealed that sentiment hit a decade-plus low in July. Only 17% of respondents said it’s a good time to purchase a home, down 20% the month prior.
Still, this hasn’t stopped some buyers from straying far from the market.
“My clients still want to buy — I don’t think the affordability is a big problem for them,” Adriana Perezchica, president of Via Real Estate Group in Washington, told Yahoo Money. “What they’re most concerned about is that homes keep going down in value. They are now asking themselves ‘how much am I willing to pay’ and ‘is competition to buy worth it’ compared to rent?”
Buyers that are still eager to purchase are gaining the upper hand, Perezchica said, and are more willing to shut a deal down if the seller refuses requested repairs or to price down a listing.
Approximately 63,000 home-purchase agreements fell through in July, or 16.1% of homes under contract. According to Redfin, that’s up from a revised rate of 15% one month earlier, and 12.5% a year prior.
That’s also the highest percentage of home contracts canceled in a month on record, Redfin data noted, with the exception of March and April 2020, when the pandemic brought the economy to a full stop.
“Home-purchase cancellations may begin to taper off as sellers get used to a slower-paced market,” Redfin Deputy Chief Economist Taylor Marr said in a news release. “Sellers have already begun to lower their prices after putting their homes on the market. They’ll likely start pricing their properties lower from the get-go and become increasingly open to negotiations.”
Home sellers scramble to keep buyers interested
Homeowner sentiment towards selling is deteriorating.
New listings, which measure the number of sellers putting homes for sale, declined 8% from a year ago, according to Realtor.com’s Housing Trend report for the week ending August 6. That’s the fifth-straight week of year-over-year declines, and signals how hesitant homeowners are willing to sell their property in this shifting market despite their gained equity.
Those that are listing may feel they have missed out on the hot market. The percentage of homes with a price reduction increased to 19.1% in July from 14.9% in June, according to Realtor.com, and is close to typical 2017 and 2019 levels.
“Those that listed homes in May and June were still very optimistic, and then they had a reality check in June, July, and August,” Perezchica said. “New listings are coming at way lower — I’m talking about 10% to 15% priced down. In some cases, even more.”
Sellers are also seeing buyer competition thin out.
Nationwide, 44.3% of home offers written by Redfin agents faced competition in July, with a revised rate of 50.9% the month prior and 63.8% one year ago. That’s the sixth-straight month of declines and lowest share on record since 2020.
Put it another way, the typical home in a bidding war received 3.5 offers in July, compared to 4.1 in June and 5.3 a year ago. In some markets, the shift is even more noticeable. For instance, in Orlando, only 37.4% of homes had bidding wars in July, down 81.4% from a year ago — the largest year-over-year decline in Redfin’s data history.
“A two-bedroom, two-bath home up the streets of Seattle used to go for $550,000 starting price, and sell for $600,000,” Perezchica said. “Right now, they are starting at $490,000 and will sell fast — or at $500,000 and will sell with concessions which can be up to 3% of the purchase price. Buyers are using those concessions to help with closing costs or buying down the rate.”
Perezchica added that it “makes sense to buy now when you’re able have the upper hand in the negotiation.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.
Read the latest personal finance trends and news from Yahoo Money.
Follow Yahoo Finance on Twitter, Instagram, YouTube, Facebook, Flipboard, and LinkedIn.
Source: Read Full Article