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Dampening Demand Prevents Would-Be Home Sellers From Listing

The typical homebuyer’s monthly payment hit a new all-time high of $2,563 this week, up 29% from $1,988 a year ago, according to a new report from Redfin [1]. Because of this, demand is dampening and preventing many would-be sellers from listing their homes.

Rising mortgage rates sent monthly payments to new heights this week despite home prices dropping: The typical U.S. home-sale price fell 1% year over year during the four weeks ending March 5.

To look at the hit on homebuying affordability another way, a homebuyer on a $2,500 monthly budget can afford a $376,000 home with today’s average rate. That’s down from the $400,000 home a buyer on the same budget could have bought a month ago when rates dropped to 6%.

Leading indicators of homebuying activity:

Spending power has declined even more dramatically when compared to a year ago, when mortgage rates were sitting at 3.85% and a buyer with a $2,500 monthly budget could afford a $480,000 home.

High monthly payments are deterring would-be homebuyers and sellers who want to hang onto their relatively low rates. Pending home sales declined 16.1% year over year and were essentially flat from a week earlier, defying seasonal trends; pending sales typically increase throughout March. New listings of homes for sale dropped 21.7%, the biggest decline in two months. That’s a reversal from January and early February, when the dropoff in both pending sales and new listings was easing as the housing market started to thaw. Redfin’s Homebuyer Demand Index—a measure of home tours and other buying services from Redfin agents—is down 4% from a week ago and 27% from a year ago.

“All eyes are on inflation as it continues to have a huge impact on mortgage rates and the housing market,” said Redfin Deputy Chief Economist Taylor Marr. “The Fed said this week that it may hike interest rates more than anticipated to combat persistent inflation. That news kept mortgage rates propped up, but next week’s official February inflation reading could send them meaningfully up or down. Homebuyers and sellers are ultra-sensitive to mortgage-rate fluctuations, so rates starting to decline would likely bring some buyers and sellers back—and rates rising would push more away.”

Some measures of homebuying demand are up from the low points they reached last fall. Redfin’s Homebuyer Demand Index is up 16% from its late-October trough and pending home sales aren’t declining nearly as fast as they were in November.

Key housing market takeaways for 400+ U.S. metro areas:

To read the full report, including more data, charts and methodology, click here [1].