A for sale sign is displayed in front of a house in Washington, DC.
Stefanie Reynolds | Afp | Getty Images
Markedly higher mortgage rates have caused a sudden drop in home sales, and now sellers are rushing in before the red-hot market cools down dramatically.
The supply of homes for sale increased 9% last week compared to the same period a year ago, according to Realtor.com. This is the largest annual gain the company has made since it began tracking the metric in 2017.
Real estate brokerage Redfin he also reported that new listings nearly doubled in the four weeks ending May 15 as they did in the same period a year ago.
“Rising mortgage rates have caused a shift in the housing market and now home sellers are in a hurry to find a buyer before demand weakens further,” said Daryl Fairweather, chief economist at Redfin.
Sellers clearly see the softening of the market. Pending home sales, a measure of contracts signed on existing homes, fell nearly 4% in April from March. They have dropped just over 9% since April 2021, according to the National Association of Realtors. This index measures contracts signed on existing homes, not closings, so it’s perhaps the most timely indicator of how buyers are reacting to higher mortgage rates. It marks the sixth consecutive month of declining sales and the slowest pace in nearly a decade.
April sales of new build homes, also measured by signed contracts, fell by a much larger 16% than expected in April, according to the United States Census.
Sales are slowing as mortgage rates have risen sharply since the start of the year, with the highest earnings in April and early May. The average 30-year fixed mortgage rate started the year near 3% and is now well over. 5%. .
“We had 10 to 15 offers on most of the homes,” said Lindsay Katz, a Redfin real estate agent in the Los Angeles area. “Now I see two to six offers on a house, a good house.”
Katz worked with Alexandra Stocker and her husband to sell their home. Stockers were already worried that the raging real estate market was suddenly cooling down.
“We’ve talked about it a lot. For example, are we wrong here? Are we missing the boat? Will everything fall apart in the next three months and will we kick ourselves for not selling our house earlier this year?” Alessandra Stocker said.
While home prices rose steadily during the first two years of the pandemic, falling mortgage rates more than offset these increases.
For example: In May 2019, a buyer who buys a $ 300,000 home with a 20% down payment and a fixed 30-year mortgage would get an average interest rate of around 4.33%. The monthly principal and interest payment would be $ 1,192. In 2020, that same house was 5% more expensive, but mortgage rates dropped to 3.41%, so the monthly payment actually dropped to $ 1,119.
By 2021, the monthly payment was only up to around $ 100. This month, with prices rising another 21% and mortgage rates rising to around 5.5%, the monthly payment reached $ 1,991. nearly $ 800 per month more than in 2019.
While home sellers were in the driver’s seat just six months ago, they are now seeing far less competition from buyers. A Redfin demand index, which measures requests for guided tours and other home purchase services, fell 8% year-over-year during the week ending May 15. This was the biggest drop since April 2020, when the pandemic disrupted most of the home buying activity.
“I met with sellers in February who will be selling in June, and it’s a very different conversation in February than in June because the market has completely changed,” said Katz.
Stockers are thrilled to have their home up for sale when they did. They are moving out of California and building a house in Washington state.
“We’re joking we could get out of here, you know, just at the right time,” said Alexandra Stocker. “I don’t want to wait any longer.”