As mortgage rates hold steady around 7%, a new report from Redfin found that demand for homes eased in October, as one-third fewer homes went under contract than was reported in October 2021. This drop marks the largest decline in contracts since 2015.
While contracts may have dropped 30% across the nation, pandemic hotspots such as Las Vegas, Miami, and Phoenix reported contract declines of around 50%, causing a record-high share of home sellers to drop their asking price sat month.
But as mortgage rates dipped below 7% in the final week of October, a handful of key measures of homebuying demand stabilized after several weeks of declines: Google searches of “homes for sale,” Redfin’s Homebuyer Demand Index, mortgage purchase applications and pending sales.
“This week the Fed brought into view the light at the end of the tunnel for slowing the pace of interest rate hikes, but that the tunnel’s exit may be more dreadful than expected,” said Taylor Marr, Redfin’s Deputy Chief Economist. “There is also a glimmer of hope in the data that buyers stopped leaving the market as mortgage rates leveled off this week, but we’re still deep in a market that is coping with the pains of higher mortgage rates.”
“Mortgage rates may take longer to come down than many have expected, which means housing trends could continue to worsen as the economy adjusts to higher rates,” Marr continued. “If last year’s housing market was as overheated as Chair Powell stated on Wednesday, then record growth in rates was like a bucket of water poured on the flames to bring it into balance. It may take some time for the smoke to clear to see where things stand next year.”
According to Redfin, it is too soon to say whether this is a momentary pause in contract activity, or the start of a broader leveling off in market activity as buyers rehash their budgets to cope with 7% mortgage rates.
The price of a newly listed home in October was 7% higher than a year ago at $375,725, but also down 7% from May’s market peak of $399.975. The median home sale price was $360,861, up 4% year over year. This growth rate was down 13 points from the peak annual increase in March.
Other key indicators of homebuying activity include:
- Fewer people searched for “homes for sale” on Google than this time in 2021. Searches during the week ending October 29 were down 32% from a year earlier, but ticked up a point from the previous week.
- The seasonally adjusted Redfin Homebuyer Demand Index—a measure of requests for home tours and other home-buying services from Redfin agents—rose half a percent in the past week, and was down 33% year over year.
- Touring activity as of October 30 was down 30% from the start of the year, compared to a 2% increase at the same time last year, according to home tour technology company ShowingTime. The gap between touring activity in 2022 and 2021 shrank 3 percentage points in the past week, indicating that the seasonal decline last week in touring is less severe this year.
- Home-sale prices fell from a year earlier in four U.S. metro areas: Prices declined 5% year over year in San Francisco, 2% in Oakland, CA, 2% in San Jose, CA and less than 1% in Lake County, IL.
- Among metro areas with at least 500 pending sales during the period, pending sales fell the most from a year ago in Las Vegas (-53%), Miami (-48%), Seattle (-48%), Phoenix, (-47%), Portland, OR (-46%) and Riverside, CA (-45%).
- The monthly mortgage payment on the median-asking-price home was $2,524 at the current 6.95% mortgage rate, up 48% from $1,703 a year earlier, when mortgage rates were 3.09% and up from a recent low of $2,203 during the four-week period ending August 14.
- Pending home sales were down 33% year over year, the largest decline since at least January 2015, as far back as this data goes, but during the seven-day period ending October 30, pending sales were up slightly from the previous week, the first increase in two months.
- New listings of homes for sale were down 18% from a year earlier. This was less extreme than the 20% decline in the four-week period ending October 23.
- Active listings (the number of homes listed for sale at any point during the period) were 7.4% above a year earlier. This was up from 7.0% in the previous period and the largest increase in six weeks.
- Months of supply—a measure of the balance between supply and demand, calculated by dividing the number of active listings by closed sales—increased to 3.3 months, the highest level since June 2020.
- 34% of homes that went under contract had an accepted offer within the first two weeks on the market, little changed from the prior four-week period but down from 40% a year earlier.
- 23% of homes that went under contract had an accepted offer within one week of hitting the market, little changed from the prior four-week period but down from 28% a year earlier.
- Homes that sold were on the market for a median of 35 days, up a full week from 27 days a year earlier and up 18 days from the record low of 17 days set in May and early June.
- 28% of homes sold above list price, down from 43% a year earlier and the lowest level since July 2020.
- On average, a record 7.9% of homes for sale each week had a price drop, up from 3.7% a year earlier.
- The average sale-to-list price ratio, which measures how close homes are selling to their final asking prices, fell to 98.7% from 100.5% a year earlier. This was the lowest level since July 2020.
Click here to view the report in its entirety.