For the first time in over three years, home-sale prices have dropped nationwide. High mortgage rates have weakened demand. Meanwhile, rents are climbing again for the first time in the same period. According to Redfin, the median home-sale price was $389,601 in the four weeks ending October 25, marking a slight decrease of 0.1% from the previous year.
Although the decline in prices offers slight relief for buyers, it is not enough to lure those discouraged by higher prices. A notable shift has taken place in the U.S. housing market, as home price growth appears to have stalled.
The modest price drop offers prospective buyers some improved affordability. Redfin reported that 21.5% of homes had their prices reduced during the four weeks ending on October 25, compared to 20.9% a year earlier.
Buyers’ demand has declined further after mortgage rates exceeded 7% last month, increasing homeownership costs compared to the start of the year. The median mortgage payment was $2,786 at the end of October, reflecting a 10.7% year-over-year increase. Mortgage rates averaged 7.24% as of October 29, slightly down from 7.32% the previous week and significantly higher than the 6.17% a year earlier.
The 30-year fixed-rate mortgage remains close to a three-year high, influenced by high inflation and efforts by the Federal Reserve to combat the rising cost of living through increased interest rates. This has caused a stall in the U.S. housing market, sometimes described as being in “hibernation.” The situation poses concerns with potential further impacts as post-election market responses unfold.
Where Home Prices Have Fallen the Most
Certain metropolitan areas experienced significant year-over-year home price declines last month:
- Seattle: -5.1%
- San Jose: -4.9%
- Austin: -4.6%
- Kansas City: -4.3%
- Nashville: -3.3%
Seattle also led the nation with a 31.6% drop in pending home sales. Other cities seeing major declines included Atlanta, San Diego, Las Vegas, and Denver.
High Mortgage Rates Have Increased Rent Prices
Higher borrowing costs prompt more individuals to postpone their home-buying plans. This has driven up rents, with the median rent rising 0.1% in October to $1,384. This is the first increase in three years after an oversupply had previously pushed costs down. Rent prices are rising even in Sun Belt areas with high vacancy rates due to construction.
For instance, in Austin, rent price declines slowed to 1.3% year-over-year, a notable change from the previous year’s 6.2% decline. Smaller declines were recorded in Denver, Phoenix, and Tampa.
Where Rent Prices Have Risen the Most
Some of the most expensive rental markets saw significant year-over-year rent increases last month:
- San Francisco: +24.3%
- Oakland: +16.5%
- Boise: +12%
- Virginia Beach: +8.5%
- San Jose: +7.9%
Conversely, places like Madison, San Antonio, and Las Vegas reported rent price declines.
What Does This Mean for Homebuyers
For buyers with cash or home equity, the current market provides an opportunity to land favorable deals. Prices have fallen, market times are normalizing, and inventory has increased. According to Joel Berner of Realtor.com, these factors are tipping the market toward buyers’ advantage.
Nevertheless, buyers dependent on mortgages face difficulties due to insufficient entry-level inventory matching their needs and budgets. As the cost of living escalates, saving for a down payment is more challenging, pushing buyers to rely on higher-rate financing.
In response, some sellers resist by retracting listings. New listings dropped 0.6% by the week ending October 25, reaching their lowest since the start of the year. Despite ongoing challenges, the number of sellers still surpasses potential buyers.
Contact Newsweek editors for further insights: Matthew Robinson and James Debens.
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