Buyers feel the chill as mortgage rates exceed 7%: Redfin

Buyers facing high mortgage interest rates are pulling out of their home purchase agreements at the highest rate in nearly a year.

Nearly 60,000 home purchase agreements were canceled nationwide in August, equivalent to 15.7% of the homes that went under contract that month, according to a new report from Redfin.

This rate is up from 14.3% in August 2022 and represents the highest rate since October 2022, when mortgage rates exceeded 7% for the first time in two decades.

The average interest rate on a 30-year mortgage was 7.07% in August. Rates rose last month to 7.23% — the highest since 2001 — leaving the typical home buyer’s monthly payment significantly higher than a year ago.

“I’ve seen more homebuyers cancel their deals in the last six months than I’ve seen at any point in my 24 years in the real estate business. They’re cold,” said Jaime Moore, a real estate agent with Redfin Premier in Reno, Nevada.

“Buyers are shocked when they see their high price on paper along with the additional expenses of maintenance, repairs and closing costs. Many of them prefer to back out, even if it means losing their earnest money. A lot of sellers are also willing to let buyers walk away because they don’t want to compromise,” Moore said. Regarding repair requests.

Home prices are not expected to fall

Home prices are high due to competition among buyers for the limited inventory in the market.

The median home sale price in the United States rose 3% year over year to $420,846 in August, the largest annual increase since October 2022.

This price was 2.8% below the May 2022 record of $432,780, and is expected to remain high for the foreseeable future.

“the Federal Reserve It still has more work to do in its battle against inflation, which means mortgage interest rates are unlikely to fall anytime soon. “As long as interest rates remain high, homeowners will be reluctant to sell,” said Chen Zhao, head of economic research at Redfin, noting that the shortage of homes for sale will keep prices high because it means buyers are competing for the limited supply of homes.

Buyer demand is below pre-pandemic levels, but it is no longer in free fall

Pending sales fell 0.6% on a seasonally adjusted basis to 381,192 in August from the previous month. Compared to the previous year, pending sales decreased by 18.1%.

That number has been hovering around less than 400,000 since the end of 2022, compared to nearly 500,000 just before the pandemic.

Pending sales have stabilized as the initial shock of higher mortgage rates moves into the rearview mirror, but high housing costs are still keeping many buyers on the sidelines, according to Redfin.

New listings are rising slightly, but overall housing supply remains at a record low

New listings rose 0.8% to 474,239 in August on a seasonally adjusted basis compared to July.

This is the second small rise on a seasonally adjusted basis after declines that have continued for about a year. New listings decreased year over year by 14.4%. Most homeowners who feel their hands are tied by high interest rates have already made the decision not to sell, Zhao said.

“New listings have probably bottomed out,” she said. “Many sellers today are putting their homes on the market because they have to, in some cases due to divorce, family emergencies or return-to-office policies.”

However, the total number of homes for sale reached a record low of 1.3 million in August, down 1.1% month-on-month on a seasonally adjusted basis and 20.8% year-over-year, the largest annual decline since June 2021.

Housing supply is at an all-time low because homeowners feel constrained by low mortgage rates. For many, selling their home and buying a new one means a much higher monthly payment, Redfin said.