Mortgage rates are rising at the fastest pace in history, sending the typical monthly mortgage payment for a homebuyer up more than $500 since the beginning of this year, according to Redfin.
As rates approach 5 percent, Redfin expects them to deter homebuyer demand by causing buyers to step back as the cost of homebuying exceeds their budgets. There are several early signs that this shift is beginning to take place.
Fewer people are starting online home searches and applying for mortgages than this time last year, and year-to-date growth in home tours remains far below 2021 levels. An increasing share of sellers also are reducing their prices after putting their homes on the market.
Even so, the market still feels hot, with homes selling faster and for more money than ever before. That’s largely because supply remains near record lows, with fewer homeowners putting their homes on the market, according to Redfin.
“Homebuyers may not feel like the market has gotten any easier. That’s because they’re often competing against investors, all-cash buyers and migrants from expensive cities who aren’t as sensitive to mortgage rates,” Redfin Chief Economist Daryl Fairweather said in a release. “But there are early indicators that the market is turning, and we expect the softening to become more apparent in the coming weeks, eventually causing home-price growth to slow. We’ll be watching closely to see whether the market slows from 100 mph to 90 or 100 mph to 75.”
In March, Redfin started receiving fewer requests than a year ago for agent services in coastal markets including Seattle, San Diego, Boston and Washington, D.C. Those markets are experiencing year-over-year declines in pending sales, though they’re still seeing homes sell relatively quickly and are not yet seeing outsized growth in the share of sellers cutting their list prices. Declines in searches, touring, and mortgage applications are larger in California than elsewhere.
“I’m starting to see early signs that the housing market is letting off some steam—something I wouldn’t have said a month ago,” Bay Area Redfin real estate agent Aaron McCarty said. “Bidding wars are still common, but homes that would have brought in 10 or more offers earlier this year are now getting half that many. Homes also aren’t selling as astronomically over the asking price as before. A house that might’ve gone for $700,000 over the list price two months ago may now go for $300,000 or $400,000 over. That’s not the case every time, but I’m finding more opportunities for my clients where the competition is a bit more manageable.”