Imagine being on the verge of buying your dream home, facing the worst home affordability conditions in over 40 years! But wait—what if I told you the tide might be turning?
Today, we’ll dive into Redfin’s latest data, which reveals some shifting dynamics, their impact on your buying power, and what they mean for the future of home prices. Whether you’re a seasoned homeowner or a first-time buyer, you won’t want to miss these crucial insights that could save you thousands.
You can watch the full report in this video or continue to read it below.
Let’s start by looking at mortgage interest rates.
Redfin turned to Mortgage News Daily to find that the 30-year fixed mortgage interest rate has dropped to 6.81% as of mid-July, the lowest rate available to buyers since the end of January earlier this year.
To gain an understanding of what mortgage rate fluctuations mean to buyers who are actively looking for a home, I’ve created this simple table:
A person who can borrow $400K at the current rate could only borrow about $355K when rates surged above 8% in October. High prices and high rates have caused a lock-in effect, preventing existing homeowners from moving because they can’t afford to leave their homes, which are financed at historically low rates. The market will need time and natural move cycles to regain momentum.
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US Median Home Price Report
Before I share Redfin’s home price findings, I’d like to share a recent exchange I had with a long-time reader of my weekly newsletter. He had just watched my last video about the lock-in effect and explained that he was warning young family members or friends to avoid buying high. In short, he believes homes are grossly inflated and will be dropping.
I suggested he reconsider his advice, pointing out that he might be biased by the recent memory of the 2008 housing market crash.
I explained that while home prices dropped during the Great Depression, the start of WWII, and the Great Recession, they have otherwise shown a consistent rise.
Although home prices will inevitably fall again at some point, they will generally trend upwards. To make specific forecasts, I focus on the supply and demand dynamic. For instance, the rate of newly built homes was cut in half over the past 16 years, leading to an estimated deficit of about 10 million homes in the US. The current market supply is barely above the all-time low recorded a few years ago.
Given this scenario, it is unlikely that home prices will decrease significantly. Historically, home prices tend to outpace inflation, which I believe might be under-reported. My advice to family members has been to think carefully before moving but to understand that the house they buy today will likely be much more valuable in 10 years.
According to Redfin, the median U.S. home price is up 5% year over year. But there are signs that price growth could slow soon, with the average home selling for under list price, inventory rising and a high share of listings growing stale.
The median U.S. home-sale price hit an all-time high of $397,482 during the four weeks ending July 7, up 4.7% year over year–the biggest increase in over four months. This marks the ninth straight week the median sale price has reached a new record high.
Our long-time readers should not be surprised to see home prices push higher. Even as demand falls, so does the supply, and builders have not produced the needed inventory for our growing population. If the politicians decide to push buyer-side stimulus or cut rates, you can count on home prices to run away from us again. The US housing crisis will only be solved with a supply-side solution.
Sale prices have remained stubbornly high despite elevated mortgage rates pushing down homebuying demand; pending home sales are down 3.5% year over year and mortgage-purchase applications are down 13%. That’s partly because inventory remains historically low, pushing up prices and pushing down sales. And it’s partly because final sale prices are a lagging indicator–they reflect deals that were struck between buyers and sellers a month or two earlier.
There are signs that price growth may lose momentum soon. The typical home is selling for 0.4% less than its asking price, marking the first time the typical home has sold under list price at the start of July since 2020, when the onset of the pandemic nearly ground the housing market to a halt. Additionally, just 32% of homes are selling above asking price, down from 36% a year ago and the lowest share at this time of year since 2020.
I must highlight how absurd this statistic is. According to Redfin, nearly one-third of all homes sold went above the asking price! Although this has decreased, it remains significantly higher than usual. Do you pay more than the listed price at the grocery store? Do you offer 15% above the sticker price at a car dealership? The fact that homes are selling above the asking price is further proof that we desperately need more homes.
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One note regarding some of the statistics that Redfin is reporting. There are over 530 MLS systems across the US, and though I’ve used only three, I can confirm that extracting accurate market time or sales price performance data is nearly impossible.
Agents often manipulate listings to improve their apparent performance.
Relying on Redfin’s market time and selling price ratios to gauge market performance is like using a map where the landmarks have been deliberately misplaced. No matter how carefully you follow it, you’ll always end up in the wrong place because the foundational information is faulty. In the same way, when agents manipulate sales data, the resulting statistics become misleading, giving a distorted view of the market.
Supply Of Homes For Sale
Although inventory is still historically low, it is rising year over year, which is another sign that price growth may lose steam in the coming months.
New listings are up 7.3% year over year, and the total number of homes for sale is up 18.3%, with most homes for sale growing stale: More than 60% of homes are listed for at least a month without going under contract.
More homes are hitting the market partly because mortgage rates have been sitting at double pandemic-era lows for nearly two years, and sellers are tired of waiting for rates to drop before they move on to their next home.
Agents nationwide report that homes are sitting longer this year compared to the past few years, leading to slightly lower prices for some—but not all—homes. Buyers are cash-constrained due to higher prices and larger down payments, so sellers should prepare, price, and promote their homes carefully to attract the right buyers.
However, according to Redfin, one market segment is still moving quickly: move-in ready homes with large backyards in desirable school districts. In many markets, one-third of these listings sell immediately and at top dollar.
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What Are Home Sellers Getting?
Redfin reports that the typical U.S. home sold during the four weeks ending June 23 went for 0.3% less than its asking price.
However, as previously noted, this might reflect an asking price that has been adjusted multiple times. Nevertheless, this is the first time Redfin has reported that homes have sold below list price during the selling season since the pandemic began in 2020, when the housing market nearly came to a standstill. A year ago, the typical home sold for exactly its list price, and two years ago, it sold for about 2% above list price. Despite the questionable data, the trend of declining percentages seems accurate, though the specific decline amount is unclear due to Redfin’s data limitations.
Additionally, just under one-third (32.3%) of U.S. homes sold over asking price during that period. That’s the lowest share of any late springtime since 2020, when the housing market had nearly ground to a halt with the onset of the pandemic, and down from 36% a year earlier. Nearly 7% of home sellers dropped their asking price, on average, the highest level since November 2022 and up from 4.7% a year ago.
Homes are increasingly selling below asking price because there are fewer buyers, who are less frantic and less inclined to enter bidding wars unless a home is priced correctly. While supply is growing, it remains near a historic low. Redfin reports an 8.2% year-over-year increase in new listings nationwide, but pending home sales are down 4.3%, marking the biggest decline in four months. Most inventory is becoming stale, with over 60% of homes listed for at least a month without going under contract.
Redfin reports declining demand, with buyers who are stepping back due to soaring housing costs. The median home-sale price has risen 4.9% year over year, reaching a record high of $397,250. Although mortgage rates have decreased from May’s six-month peak, the weekly average remains close to 7%. The typical homebuyer’s monthly payment is $2,785, only about $50 below the all-time high.
Redfin also suggested that buyers may get a slight respite soon on costs soon. The growing likelihood that homes sell below asking price, along with the high share of sellers dropping their prices, could mean sale-price growth loses momentum. Plus, mortgage rates may decrease further if inflation continues to cool.
Agents across the country are reporting similar trends. The most sought-after properties are either move-in ready or complete fixer-uppers. Homes that are decent but not updated are staying on the market the longest. Buyers lack the funds to renovate these homes, but property flippers are eager to purchase and renovate them for resale.
Growth In “Stale” Listings
Many home listings are becoming stale, staying on the market for 30 days or more without going under contract. Agents report that fewer buyers are willing to pay high housing costs, except for move-in ready homes in popular neighborhoods.
Getting top dollar today still relies on attracting multiple buyers to spark a bidding war. If you only attract one buyer, you’ll likely have to negotiate the price down. With multiple buyers, they compete to purchase your home. Your asking price, based on your property’s location and condition, is crucial for generating interest. Hire a top agent who will give you a realistic price to attract multiple offers, not just tell you what you want to hear.
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