The housing market is chilling even more as summer gives way to fall, and Zillow's economist is seeing a silver lining in the forecast for homebuyers — at least those who can still afford to buy amid sky-high rates.
"This fall might be a sweet spot for homebuyers who have room in their budget to deal with higher mortgage rates," Zillow senior economist Jeff Tucker wrote in a report issued Thursday.
Even though the housing market usually fluctuates with the seasons, competition in the U.S. real estate market is "cooling off remarkably fast, even for this time of year," Tucker said, with sellers cutting prices more frequently. Meanwhile, the "drought of new listings, which kept options scarce and competition high, eased a little last month."
"There are more motivated sellers and more active listings overall than any time since last December, improving buyers' chance to find the right fit," Tucker wrote. "That favorable supply setup is coinciding with a negative shock to demand, which means less competition for those home shoppers who remain in the hunt."
This fall, sellers may even "rue their timing," Tucker said, "as this summer's surprisingly favorable selling conditions fade into memory along with their summer freckles."
The weekly share of listings with price cuts climbed up to 9.2% in the week ending Sept. 16, which is the highest share seen since November of last year, according to Zillow.
"The weeks after Labor Day often set a high-water mark for this metric, as sellers get anxious that they missed the summer tide of demand and try to revive interest with a price cut before demand slips further away," Tucker wrote. "But even for this time of year, 9.2% is quite high — the comparable week in 2019 saw 7.9% of listings with a price cut, which itself was unusually high."
Tucker said the high share of price cuts either means "buyers have pulled back, sellers have overreached with too-high list prices, or some combination of both."
Are home prices going to go down again?
This year, the housing market's seasonal cooldown is "accelerating at an unusual pace" heading into early fall. "That means the balance of negotiating power is swinging rapidly from sellers to buyers," Tucker said.
What does that mean for home prices? Tucker said it could be "likely a precursor to slowing home value growth, and even some price declines this fall and winter."
A slew of factors will likely impact whether U.S. housing prices will go up or down heading into 2024 — and price trends will likely depend on regional and local markets — but their trajectory will likely be influenced heavily by what happens to mortgage interest rates.
The Federal Reserve is continuing its fight to tamp down on record inflation levels, and today mortgage rates continue to hover at over 7%, which has had a brutal impact on housing affordability and buyers' ability to access the housing market.
Still, it's not been enough to bring national prices down significantly. This year, despite high rates, U.S. home prices began to grow slowly again. Home prices in pandemic hot spot areas including the West dipped from their spring 2022 peak. However, they seemed to bottom in winter before slowly ticking back up again.
It's possible high rates, housing affordability issues and plunging seasonal demand could pressure enough motivated sellers to slash prices again — though it remains to be seen whether those price cuts will be dramatic and widespread enough to bring home prices back down significantly or enough to surpass the trough from winter of 2022.
Record low for mortgage applications
Another indicator of just how sluggish the housing market is heading into autumn is the latest Mortgage Bankers Association weekly mortgage application survey released Wednesday.
The number of mortgage applications dropped 6% from one week earlier, according to the survey for the week ending on Sept. 29.
Thanks to rising mortgage rates, "mortgage applications ground to a halt, dropping to the lowest level since 1996," said Joel Kan, the Mortgage Bankers Association's vice president and deputy chief economist.
"Mortgage rates continued to move higher last week as markets digested the recent upswing in Treasury yields," Kan said. "Rates for all mortgage products increased, with the 30-year fixed mortgage rate increasing for the fourth consecutive week to 7.53% — the highest rate since 2000."
Katie McKellar, Deseret News | Posted - Oct. 7, 2023