Home Price Cuts Surge To 18-Month High In Rate-Sensitive Market
How has the median sale price of homes changed despite the increase in price reductions?
The median sale price of homes has continued to climb despite the increase in price reductions. According to a Redfin report, the median home sale price hit a record high this week, reflecting a 4.3% increase year-over-year, reaching $390,613 — an all-time high. This increase comes even as the average age of inventory extended to 46 days, up from previous months, indicating homes are staying on the market longer before being sold.
What factors are contributing to the highest level of home price cuts in the last 18 months?
The highest level of home price cuts in the last 18 months is being driven by several factors. High mortgage rates are playing a significant role in influencing the housing market2. As borrowing costs remain high, it complicates the buying process and could lead to a longer-term market cool-down.
The median asking price has also dropped slightly, which, coupled with an increase in the median home sale price, is contributing to the price cuts. The shift towards a potential buyer's market is also a contributing factor, as high historical prices still dominate the landscape, making affordability a challenge for many.
Additionally, the slowdown in pending home sales and a near six-month low in mortgage-purchase applications are paralleling the downturn in the housing market. Despite an increase in new listings compared to last year, the pace of listing growth has been waning over the past few months, aggravating the challenge for buyers with fewer options than usual for this time of year.
In summary, high mortgage rates, a shift towards a buyer's market, a drop in the median asking price, and a slowdown in pending home sales and mortgage-purchase applications are all contributing to the highest level of home price cuts in the last 18 months2.
What impact are high borrowing costs having on the housing market's dynamics?
High borrowing costs, driven by increased interest rates, are significantly impacting the dynamics of the housing market. These costs are influencing both demand and supply sides of the market, leading to notable shifts in market conditions.
On the demand side, high mortgage rates are reducing the purchasing power of potential homebuyers. As mortgage rates rise, the monthly payments on loans increase, making it more expensive for buyers to borrow money for home purchases. This has been pushing some potential buyers out of the market, particularly first-time buyers who are more likely to be sensitive to changes in borrowing costs.
On the supply side, the high borrowing costs are causing a slowdown in housing construction. Rising interest rates and falling home prices can slow down construction, which limits supply increases in the housing market. This is exacerbating the existing housing shortage.
The high borrowing costs are also leading to an increase in home sellers reducing their asking prices, marking the highest level of price cuts in 18 months. The median asking price has dropped, though the median home sale price continues to climb, reflecting a 4.3% increase year-over-year.
Moreover, the high borrowing costs are complicating the buying process and possibly leading to a longer-term market cool-down. The average age of inventory has extended, indicating homes are staying on the market longer before being sold.
In summary, high borrowing costs are making it more expensive for buyers to borrow money for home purchases, leading to a decrease in demand. At the same time, these costs are causing a slowdown in housing construction, limiting the supply of homes. These dynamics are leading to changes in the housing market, including an increase in price cuts and homes staying on the market for longer periods.