Nearly 20% of Home Sellers Have Dropped Prices

In a sign that the inflationary fever that has afflicted housing prices may be starting to break, nearly one in five home sellers dropped prices during the four-week period ending last Sunday, according to a new report from Redfin.

In its housing market update, Redfin said prices dropped on 19.1% of homes for sale during its four-week survey, up from 13% last month.

Redfin’s seasonally adjusted Homebuyer Demand Index, which measures the number of home buyers requesting tours, posted its largest decline since April 2020, when Covid lockdowns curtailed activity. Mortgage-purchase applications were down 16% from a year earlier and now match the level in June 2020, according to the report.

“The housing market is sending clear signals that the pandemic-driven housing frenzy is coming to an end,” Redfin said, in a release posted on its website.

“The picture of a softening housing market is becoming clearer, especially to home sellers who are increasingly turning to price drops as buyers become more cost-conscious under higher mortgage rates,” said Daryl Fairweather, Redfin’s Chief Economist.

“For now, mortgage rates have stabilized, and I expect prices to do the same. This will remove some uncertainty for buyers. As long as a home is priced conservatively, it still has a good chance of selling quickly,” Fairweather added.

Record home prices—the median average price in the US is now more than $400,000—appear to have hit a ceiling of affordability for buyers. US pending home sales declined 3.9% in April from March, according to data released this week by the National Association of Realtors.

As what had been a red-hot housing market shows signs that it’s starting to cool, Freddie Mac said the average rate for a 30-year fixed-rate mortgage fell for the second week in a row to 5.1%, down from a peak of 5.3% earlier this month—the highest level since 2009.

Mortgage rates over 5%–the average median monthly mortgage payment in the US is approaching $2,000—also have been squeezing affordability out of the housing market.

According to the Federal Reserve Bank of Atlanta, a median US household now needs to spend 38.6% of its monthly income on payments for a median-priced home—the highest level since August 2007—up from 32.6% at the end of 2021.

The standard metric for affordability is that a household doesn’t spend more than 30% of its monthly income on rent or mortgage payments.

Several analysts noted that even a leveling off of mortgage rates might stave off a further decline in housing demand. However, rates are likely to stay high as the Fed continues its schedule of prime rate increase.