Elevated mortgage rates and high home prices have pushed many potential buyers to the sidelines, crimping home sales and prompting housing experts to lower their recovery forecasts for the rest of the year.
The mortgage finance giant Freddie Mac said Thursday that the most popular home loan in the United States — the 30-year, fixed-rate mortgage — slipped to 7.32 percent, the fifth consecutive week that rates have been above 7 percent.
High housing costs have put the market in a deep freeze, but prices are falling in some pockets of the country.
“What we’re seeing is more motivated sellers that are cutting prices,” said Joel Berner, a senior economist at Realtor.com, a listings website.
Prices on more than 20 percent of listings were reduced September, said Mr. Berner. Some markets that soared during the pandemic are correcting, he added, pointing to cities in Florida and Texas. “What were the hot markets are now the pretty cool markets,” he said.
In Austin, for example, home prices slid more than 8 percent in September from a year earlier, according to a report from Realtor.com, using a metric called price per square foot, which is used to calculate the value of a property relative to its size.
Buyers are more educated now and have more flexibility to wait, said Crystal Olenbush, a real estate agent in Austin. Sellers, on the other hand, are feeling pressure to price their homes more realistically, she said, adding that she is seeing more reductions as the market resets.
“People are negotiating,” she said. “They are getting all kinds of opportunities.”
Still, affordability remains an issue nationwide. The median sales price of U.S. homes rose 1.3 percent in September from a year earlier, to $417,500, the 39th consecutive month of year-over-year price increases, according to a report released last week by the National Association of Realtors, a trade group.
Prices began to surge during the pandemic, when mortgage rates fell below 3 percent. As the housing market began to heat up, bidding wars broke out, which pushed up home prices around the country.
Since then, homeowners have been unwilling to move, which would mean trading their ultralow rates for higher ones. That created a lock-in effect that has helped keep prices elevated, said Lu Liu, an assistant professor of finance at the Wharton School at the University of Pennsylvania.
“There could be a behavioral story where people are not willing to take a loss,” she said. “It really depends on whether you’re willing to bite the bullet.”
The higher housing costs have hammered existing-home sales, which fell 2.2 percent in September from the year before, NAR reported. Other key real estate metrics — housing starts, pending home sales and builder confidence — have all slumped recently.
Experts point to elevated inflation as an underlying problem. Higher energy costs are driving inflation higher as the war in Iran chokes the world’s supply of crude oil. Consumer prices were 3.7 percent higher in September than a year earlier, according to the Bureau of Labor Statistics. But wages have been relatively flat.
“One of the biggest challenges we’re facing right now, especially for first-time home buyers, is that wage growth is not outpacing inflation,” Mr. Berner said.
The sluggishness is prompting experts to revise their forecasts for a housing market recovery. “We expect housing activity to improve around the end of 2027, when we look for mortgage rates to decline,” analysts at Oxford Economics wrote Tuesday in a research note.
Until then, they added, “we think housing activity will be more characterized by gridlock.”
Despite the market downturn, a bright spot has emerged for buyers. Sellers are now reconsidering market conditions, which can give buyers the upper hand.
“The market is clearly tilting in favor of buyers able to negotiate better prices,” Lawrence Yun, NAR’s chief economist, said last week on a call with reporters.
And builders of new homes are more willing to negotiate to clear inventory.
Forty-three percent of builders cut prices in October, the highest share since 2020, according to a survey released Monday by the National Association of Home Builders, a trade group.
The average price cut was 6 percent for the seventh consecutive month, the group said. In addition, 65 percent of builders reported using sales incentives in October, the 19th straight month that at least 60 percent of builders have done so.
“Our research shows that new home buyers, who often take advantage of reduced rate offerings from builders, pay as much as a full percentage point less on their mortgage.” Mr. Berner said in a report last year. “New construction should absolutely be on the radar of any prospective home buyer.”
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