Pending home sales hit a 12-year low as mortgage rates surpassed 7%, cooling demand across major U.S. metros.
Source: Original report
U.S. pending home sales have reached their lowest point since 2014, with the exception of the pandemic-induced freeze in 2020. The sharp decline comes as mortgage rates climbed above 7%, significantly reducing affordability for potential homebuyers.
The drop in pending sales was universal, affecting every major U.S. metro area. The most pronounced declines were observed in Seattle (-24.4% year over year), Los Angeles (-16%), San Diego (-15.8%), and Anaheim, CA (-15.5%). These regions, known for their high home prices, were particularly impacted by the surge in mortgage rates, which priced out many would-be buyers.
U.S. home prices saw a modest year-over-year increase of 1.3% in September, marking the smallest gain since February. This slowdown in price growth suggests that the market may be losing momentum. Additionally, the number of homes available for purchase hit a peak not seen since early 2020, showing that sellers are entering the market despite the cooling demand.
The share of homebuying deals that fell through reached 14.5% in September, the highest on record, reflecting the growing power of buyers in the current market. Buyers now have more room to negotiate on price, closing costs, and repairs, and some sellers are even offering mortgage-rate buydowns to attract purchasers.
Chen Zhao, Redfin's head of economic research, stated that rising mortgage rates above 7% have led to a decrease in home purchases due to reduced affordability. She also mentioned that buyers now have an advantage, with less competition allowing for more negotiation power. She advised sellers to set realistic prices and consider offering incentives like rate buydowns or covering closing costs.
Despite the challenges, there are still buyers in the market. The median U.S. home-sale price rose to $393,895 in September, with some metro areas like San Francisco, Cleveland, and St. Louis experiencing price increases. However, other regions, such as Seattle, San Jose, and Denver, saw declines in median sale prices.
Looking ahead, the housing market is likely to remain challenging for both buyers and sellers. Rising mortgage rates and economic uncertainty will continue to influence buyer behavior, while sellers will need to adapt to the shifting dynamics by pricing competitively and preparing their homes meticulously to attract offers.
For those navigating this complex market, understanding the local trends and leveraging negotiation tactics will be key to success.
