Mortgage rates hit their highest level since November 2008 this week, crushing demand from homebuyers.
The rate on the 30-year fixed mortgage jumped to 5.89% from 5.66% the previous week, according to Freddie Mac. Rates jumped nearly three-quarters of a point in just three weeks and are now more than 2.5 percentage points higher than at the start of this year.
High borrowing costs and inventory shortages have pushed inflation-hit homebuyers on the sidelines, while those remaining in the market are no longer rushing to make offers, forcing sellers to reassess their price expectations.
“Mortgage rates have risen again as markets continue to manage the prospect of more aggressive monetary policy to combat high inflation,” Sam Khater, chief economist at Freddie Mac, said in a statement.
Buyers await further home price declines
Mortgage demand remained at a 22-year low in late August, according to the Mortgage Bankers Association survey for the week ending September 2, as buying and refinancing activity continued to fall. Shopping activity has declined in nine of the past 10 weeks, down 23% from the same week a year earlier.
“Homebuyers may be encouraged to stay on the sidelines as they anticipate lower home prices, contributing to a further cooling in home sales through the end of the year,” said Doug Duncan, chief economist. of Fannie Mae, in a press release.
Signs of falling house prices are also emerging.
The median home price fell to $435,000 in August, according to Realtor.com, down from $449,000 last month and June’s record high of $450,000. And the share of people who think house prices will fall over the next 12 months rose to 33% in August, according to a new Fannie Mae housing sentiment survey, down from 30% the previous month.
Still, home prices remain 39.6% higher than in August 2019. With rates hovering around 5.50%, the median monthly payment for a typical home is over $2,000, or about 61 % more than last year.
“We are only just beginning to see more of the effects of the dramatic rise in rates since the start of the year,” said Robert Heck, vice president of Morty, told Yahoo Money. “For homebuyers…rates may have to come down before we see near-term activity picking up.”
Sellers lower prices
As home sales cool, sellers have become more pessimistic about their prospects.
According to Fannie Mae, housing sentiment fell to a new high in August, fueled by a decline in seller confidence. Only 59% of sellers think it’s a good time to sell – its lowest point in two years – while 35% of respondents said it’s a bad time to sell.
Across the country, home sellers have been forced to lower listing prices to attract buyers. The share of dwellings benefiting from a price reduction rose to 19.4% in August, compared to 11% a year earlier. According to Realtor.com, that’s near average levels from 2017 to 2019.
“As home prices fall, buyers have a bit more bargaining power or bargaining power and more options for buying a home. But the amount of contingency waiver that is reduced depends on the market,” Heck said. “Some markets in the Sunbelt region have had absolutely crazy home appreciation and people looking to buy are finally seeing that pressure eased.”
At the same time, recent price declines have spooked some sellers. As competition waned, newly listed homes followed, down 13.4% year over year.
“In normal years, we always see this late summer slowdown around Labor Day, and then activity tends to pick up in the fall between September and December,” Heck said. “We are definitely at a point where we could see activity picking up a bit, even if the rates were to stay the same. But if mortgage rates go down, we’ll see short-term activity really jump.
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.