Rising mortgage rates have sent shockwaves through the residential real estate market. With rates now the highest they've been in over two decades, homebuyers are reconsidering their purchase decisions. As evidence, almost 60,000 home-purchase agreements were canceled nationwide in August, equivalent to 15.7% of the homes that went under contract in that month. Not only is this a spike from the 14.3% from the previous year, but it's the highest cancellation rate observed since October 2022.
To give a clear picture, the average interest rate for a 30-year fixed mortgage climbed to 7.07% in August. At one juncture in the same month, this rate even reached 7.23% - a level last seen in 2001. As a direct consequence, the typical monthly payment for prospective homeowners saw a marked rise compared to the previous year.
“The last six months have seen an unprecedented number of deal cancellations. Many homebuyers are bowing out, overwhelmed by the high rates and additional costs, even at the risk of losing their earnest money,” said Jaime Moore, a veteran real estate agent from Redfin Premier in Reno, NV.
Home Prices Surge, But Demand and Listings Show Stability
The median home sale price in the U.S. experienced a 3% year-on-year growth in August, reaching $420,846. This increment is the largest since October 2022, and the price is just 2.8% short of the record high of $432,780, set in May 2022. While the housing market's activity is sluggish due to the escalated mortgage rates, high prices persist. A limited number of available homes means that those who are still in the market face stiff competition.
"It's unlikely that we'll see a drop in mortgage rates soon, with the Federal Reserve still grappling with inflation. This ongoing high rate scenario discourages homeowners from selling, hence the limited housing supply. The outcome? Elevated home prices," said Redfin Economics Research Lead, Chen Zhao.
Interestingly, the price gains in August 2023 can also be attributed to a “base effect”. In August 2022, prices had begun their descent from a peak, amplifying the year-on-year differences we observe now.
Buyer Demand and New Listings: Current Landscape
The trajectory for pending sales seems to have stabilized. In August, they were down by 0.6% compared to the previous month (on a seasonally-adjusted basis) and saw an 18.1% year-on-year dip. Even with this relative stability, current pending sales figures remain below pre-pandemic benchmarks.
On the listings front, August witnessed a 0.8% month-on-month increase. This upturn, albeit small, is a positive sign following almost a year of continuous declines. However, the overall housing supply in August plunged to an all-time low.
"Most homeowners are holding back due to high rates. A lot of the current sellers are in the market out of necessity," noted Zhao.
Metro-Level Insights: August 2023
Diving deeper into metro-level data, variations in sales, prices, listings, supply, competition, and speed of deals emerge across different regions:
Pending sales: Boise, ID saw the most significant drop in year-on-year pending sales at 70.5%. On the flip side, Rochester, NY, and McAllen, TX observed slight increases.
Closed sales: Bridgeport, CT recorded a 25.9% year-on-year decline, the sharpest across all metros analyzed by Redfin.
Prices: Newark, NJ led the pack with a 16.7% year-on-year price increment. 15 metros experienced price declines, with Austin, TX seeing the most significant dip.
Listings and Supply: Hartford and Allentown, PA reported the most considerable year-on-year reductions in new listings. Boise experienced the most significant dip in active listings, while New Orleans observed the largest surge.
Competition and Speed: Rochester had 77.1% of homes selling above their listed price. The fastest market was Grand Rapids, MI, with homes typically going under contract in just seven days.
Deal Cancellations in Focus
For a detailed breakdown of deal cancellations across the 50 most populous U.S. metropolitan areas, and other localized insights, please refer to the original report by Redfin. It's crucial to remember that a deal falling through in a specific month doesn't necessarily imply the home went under contract in the same month. For instance, a deal that was canceled in August might have originally been contracted in July.