Home Sales Slide to Lowest Level Since 2014, Market briefs

In Seattle, Mortgage rates that were tickling in the mid-6% range a year ago have bounded above 7%.

When mortgage rates go up, buying a home becomes more expensive, slowing demand and changing some market behavior. And that’s happening in the home market right now, says a report just released by Seattle-based real estate brokerage Redfin.

Redfin notes that pending home sales in the U.S. have dropped to their lowest level since the spring of 2014—with the exception of April 2020, when the onset of the COVID pandemic brought home purchasing to a halt.

Sales transactions in September declined 4% from a month earlier on a seasonally adjusted basis, the biggest monthly drop in more than three years, Redfin adds. The sales drop is a real-time indicator of what’s taking place in the market. Fewer homes went under contract in September, mainly because mortgage rates rose steadily, surpassing 7% by month’s end.

For the first time in three years, pending home sales declined in all 50 of the most populous U.S. metros. The last time that happened was in September 2023, which was also the last time mortgage rates exceeded 7% for a sustained period.

The biggest decreases were found on the West Coast. Seattle posted the biggest drop (-24.4% year over year) followed by Los Angeles (-16%), San Diego (-15.8%) and Anaheim (-15.5%). Those Southern California metros are all among the priciest in the U.S., says Redfin, so rising mortgage rates hit hard, forcing many potential buyers out of the competition to acquire a residence. Seattle is also expensive, and a rocky job market there impairs the restrained demand for homes.

Two Silver Linings

“It’s not surprising that when rates climb above 7%, fewer people buy homes because fewer people can afford them,” said Chen Zhao, Redfin’s head of economic research. “But dig a little deeper, and there’s a silver lining on both sides.”

“For buyers, less competition means more room to negotiate: on price, on closing costs, on repairs. And sometimes sellers even pay for a mortgage-rate buydown.”

“Slow sales also mean prices may flatten or fall in the not-too-distant future. Sellers should keep in mind that while many folks searching for homes have pulled back, some people simply need to move and are still buying homes.”

“My best advice for sellers in this environment is to price realistically from the start and lean into any flexibility you can offer; a rate buydown or covering closing costs can go a long way when buyers are stretched thin.”

Home Prices Losing Steam

Rising mortgage rates and stubbornly high prices are pricing a lot of potential buyers out of the market. The median U.S. home-sale price rose 1.3% year over year to $393,895 in September, the smallest increase since February.

Other data points show that prices may be losing a bit of steam:

• The median asking price fell 0.5% month over month in September. Year-over-year, asking prices rose 0.6%, the smallest increase since April. Prices losing momentum could help buyers with affordability.
• 60.5% of homes that sold in September went for less than their original asking price, continuing an 18-month streak of roughly 3 in 5 homes selling below what the seller wanted.
• 1 in 5 (19.8%) U.S. home sellers with active listings dropped their asking price in September. The share of home sellers cutting prices increased in 43 of the 50 most populous metros.

Supply Highest Since 2020

The total number of homes for sale rose 1.2% from a month earlier to its highest level since March 2020.

The inventory is widening because sellers continue to put their homes on the market while buyers withdraw. New listings ticked up 0.3% month over month, similar to the small swings seen over the last year.

Sellers aren’t pulling back the way buyers are, but new listings aren’t jumping. While some homeowners are putting their domiciles on the market because they need to, some are concerned about market conditions.

“For the last decade, there was almost a certainty that if you listed a home, it would sell–and it would usually sell quickly, with multiple offers,” said Brian Connelly, a Redfin Premier agent in Boston. “Now, the calculus has changed. If you’re not pricing slightly below nearby comps and prepping your home meticulously, your home may very well linger on the market, leading to price cuts or delistings. If you’re selling a home, be aggressive and list it potentially 5 to 10% below what you think you should list it for.”

Near-Record Share of Deals Fail

More homebuyers are backing out of deals than ever before, says Redfin’s analysis. Nationwide, 14.5% of purchases that went under contract in September were canceled—the highest share since the start of the pandemic. Other than March and April 2020, it’s the highest share on record.

Contract cancellations are prevalent because buyers are in the driver’s seat. It’s the strongest buyer’s market on record, meaning sellers are typically competing for buyers—not the other way around. When house hunters have multiple options, they’re more likely to back out of a deal if the inspection is problematic, their monthly payment doesn’t look like they thought it would, or they simply change their mind.

One in five (19.9%) homebuying deals in Jacksonville was canceled in September—the highest share among the 50 most populous metros nationally, followed by Tampa (18.8%), Las Vegas (18.6%), San Antonio (18.5%) and Phoenix (18.4%), all big buyer’s markets.

Deals are least likely to fall through in San Francisco, where just 2.8% of contracts tanked in September. Next are Nassau County, San Jose, Montgomery County, Penn. and New York, all metros where less than 8% of deals were canceled.

San Francisco, Nassau County and Montgomery County are three of just five seller’s markets in the U.S. When there are more buyers than sellers in the market, buyers are less likely to back out.