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By Giulia Carbonaro
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Home-sale prices fell nationwide last month for the first time in more than three years, as high mortgage rates squeezed already weak demand, while rents moved in the opposite direction, rising for the first time in just as long.
The median home-sale price was $389,601 in the four weeks ending October 25, down 0.1 percent from a year earlier, said real estate brokerage Redfin. It is such a modest decline that it is not likely to tilt the scales for would-be buyers discouraged by higher prices. However, it is a dramatic reversal for the U.S. housing market, where home price growth until now seemed only able to slow down but not to be halted.
This is a hollow victory for American buyers. On one hand, lower prices offer some improvement in affordability, which has long been strained. According to Redfin, 21.5 percent of homes for sales in the four weeks ending October 25 had their asking price slashed by sellers, up from 20.9 percent a year earlier.
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On the other hand, prices are falling because buyers’ demand has plunged further down after mortgage rates climbed back above 7 percent last month, making homeownership even more expensive than it was at the beginning of the year.
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The median mortgage payment was $2,786 in the week ending October 25; this is up 10.7 percent year-over-year to the highest level in Redfin’s record except the previous week, when mortgage rates averaged even higher. As of October 29, the latest data made available by Freddie Mac, the 30-year fixed-rate mortgage averaged 7.24 percent, down from 7.32 percent the previous week and 6.17 percent a year earlier.
Despite this recent decline, the 30-year fixed-rate mortgage, the most popular home loan among American borrowers, was still near a three-year high. This was driven up by high inflation and the Federal Reserve’s attempt to fend off further increases in the cost of living by rising interest rates.
These higher costs are contributing to the deep freeze the U.S. housing market has experienced since the start of the year, which experts have described to Newsweek as a state of "hibernation" that is frustrating American voters. And things could get worse in the coming weeks, after Election Day.
Pending home sales, which offers an indication of how the housing market will fare in the coming months, fell 1.8 percent from a week earlier on October 25 to the lowest level in records dating back to 2021.
For the third week in a row, pending sales declined in all 50 of the most populous U.S. metro areas, according to Redfin.
Where Home Prices Have Fallen the Most
Redfin said these metros saw the biggest year-over-year home price declines last month:
- Seattle: -5.1 percent
- San Jose: -4.9 percent
- Austin: -4.6 percent
- Kansas City: -4.3 percent
- Nashville: -3.3 percent
Seattle also saw the biggest decline in pending home sales in the country, down 31.6 percent year-over-year in October. It was followed by Atlanta with -25.9 percent, San Diego with -25.3 percent, Las Vegas with -22.7 percent, and Denver with -22.3 percent.
High Mortgage Rates Are Pushing Up Rent Prices
Higher borrowing costs are forcing more Americans to stay put and delay their ambition of buying a home.
While the impact of this phenomenon is minimal now, it is already showing up in the data: the median rent nationwide rose 0.1 percent in October to $1,384, according to Apartment List. It is the first time in three years that nationwide rent prices reported an increase, after an oversupply of apartments had caused costs to fall in recent years.
The national multifamily vacancy rate remains historically high, at 7 percent as of last month, but is now consistently declining after peaking earlier this year.
A sign that a tide might now have turned in the rental market is that prices are rising even in those same Sun Belt markets that have seen the highest vacancy rates in recent years due to a boom in construction. Even in Austin, a former pandemic boomtown which has experienced a dramatic price correction since the pandemic, the decline in rent prices has slowed down to just 1.3 percent year-over-year last month. This slowdown becomes more significant when considering the 6.2 percent decline the metro experienced last year.
Declines were smaller in Denver (-2.4 percent year-over-year), Phoenix (-2.5 percent) and Tampa (-2.2 percent) as well, even as they are still among the biggest in the nation.
Where Rent Prices Have Risen the Most
The biggest year-over-year increases in rent prices last month were reported in the following metros, which include some of the most expensive rental and housing markets in the nation:
- San Francisco: +24.3 percent
- Oakland: +16.5 percent
- Boise: +12 percent
- Virginia Beach: +8.5 percent
- San Jose: +7.9 percent
- Norfolk: +7.9 percent
- Reno: +7.4 percent
- Fremont: +7.1 percent
- Bakersfield: +5.3 percent
- Chesapeake: +5.3 percent
On the other hand, the biggest year-over-year declines were reported in:
- Madison: -3.7 percent
- San Antonio: -3.5 percent
- Garland: -3.4 percent
- Las Vegas: -3.1 percent
- Arlington: -2.8 percent
- Phoenix: -2.5 percent
- Mesa: -2.4 percent
- Denver: -2.4 percent
- Plano: -2.3 percent
- Tampa: -2.2 percent
What Does This Mean for Homebuyers
For buyers with "plenty of cash or home equity," like those who have bought a property before prices skyrocketed during the pandemic, now is the time to get a good deal, Joel Berner previously told Newsweek. He is senior economist at real estate listing website Realtor.com.
"Prices are falling, time on market is back to normal, and inventory continues to grow. The national market is tipping into buyers’ territory," Berner said.
But even as they are gaining more negotiating and purchasing power, buyers who rely on mortgages "are often struggling to find entry-level inventory that meets their needs and their budget," Berner said.
"With a growing cost of living, saving for a down payment becomes more difficult, so first-time buyers end up financing more of their purchase at higher rates because of the current inflationary cycle," he said.
With many buyers priced out of the market by mortgage rates, "competition from other sellers is increasing," Berner added. Some sellers, seeing the direction taken by the market, are pulling back. Redfin latest data shows new listings declined 0.6 percent from a week earlier in the week ending October 25 to their lowest level since the start of the year.
Though this trend, brought to extreme, could once again lead to the market shifting in favor of sellers, these currently outnumber buyers by the thousands.
Contact Newsweek editors on this story: Matthew Robinson and James Debens
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