Home sellers are slashing prices at the highest level since 2019 as the red-hot housing market shows signs of finally cooling down.
Real estate brokerage Redfin found that nearly 1 in 5 sellers, more than 19%, dropped prices for the month ending on May 22. That marks the highest rate since October 2019, the study found. The news comes as sales of new homes are tumbling to pre-pandemic lows.
New home sales in April plummeted from just a month ago, dropping a whopping 16.6% to a seasonally adjusted annual rate of 591,000, the Census Bureau announced earlier this week. The number was far below what forecasters had expected and shows that the housing market is slowing faster than many might have anticipated.
“The picture of a softening housing market is becoming more clear, especially to home sellers who are increasingly turning to price drops as buyers become more cost-conscious under higher mortgage rates,” said Redfin chief economist Daryl Fairweather.
NEW HOME SALES FALL TO PRE-PANDEMIC LEVELS
Additionally, existing-home sales declined by 2.4% in April to a seasonally adjusted annual rate of 5.61 million, according to a report by the National Association of Realtors released last Friday.
Though, one factor that could prevent demand from dropping further is declining mortgage rates. U.S. mortgage rates had their biggest weekly decline since April 2020, dropping from 5.25% to 5.10% last week, according to Freddie Mac. That marks the second straight week of declines.
“For now, mortgage rates have stabilized, and I expect prices to do the same. This will remove some uncertainty for buyers,” said Fairweather. “That means that as long as a home is priced conservatively, it still has a good chance of selling quickly.”
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Mortgage rates were at stunning lows for months as the Federal Reserve kept its interest rate target at near-zero levels, fueling a smoldering housing market that featured surging prices.
But the Fed increased its interest rate target by a quarter of a percentage point in March and subsequently jacked up rates by a half percentage point earlier this month, causing rates to soar quickly.