‘We’re seeing buyers backing out’: This dramatic chart reveals U-turn in the housing market as sellers slash home prices

Here’s a chart that says a thousand words about the current state of the real estate market.

The chart above, part of a new report from real estate broker Redfin RDFN,
-7.03%
in the housing market shows how home sellers are adjusting to the new normal of 7% mortgage rates.

The chart shows that 7.9% of the homes for sale in the market have fallen in price each week – and that’s a record high.

That compares to just 4% of homes that saw their prices go down every week for the same period a year ago.

Redfin’s data goes back to 2015. The company averaged the proportion of listings that experienced a price drop over four weeks to smooth out outliers.

Taylor Marr, Redfin’s deputy chief economist, added that when viewed over a longer period of time, ie one month, the company’s data shows that a quarter of homes are currently seeing prices fall.

“We’ve never been this high,” Marr said in an interview with MarketWatch.

Unlike buyers, who are much more sensitive to rising mortgage rates, “sellers are slow to respond to changes in demand…they set prices based on where they think the market is.” [and] are often reluctant to understate their prices,” Marr said.

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So for sellers, he added, prices are a bit stickier and falling at a slower rate.

But even if it took a while, the time has finally come.

Finally, mortgage rates are at a decade-high, with 30-year-olds trending steadily above 7% as of Friday afternoon, according to Mortgage News Daily. And that is likely to rise further as the 10-year Treasury Note TMUBMUSD10Y,
4.023%,
tends to be over 4%.

Meanwhile, Redfin said the average home on the market is trading at over $367,000, up 7% year over year.

The monthly mortgage for this home at the current interest rate of 6.92% is $2,559, according to Freddie Mac.

A year ago, when interest rates were 3.05%, that monthly payment would have been just $1,698.

Two tips for homebuyers struggling with high mortgage rates

Vendors are dropping their prices by an average of 4% to 5%, Marr said.

“One would almost expect it to get a lot worse,” he added, considering how quickly interest rates rose and purchasing power eroded.

But buyers and sellers are also using two different tactics to gain some mortgage rate relief, Marr said.

First, sellers approach buyers and offer concessions to lower mortgage rates.

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In other words, the sellers require buyers to pay the full asking price, but suggest using part of it as a concession to get buyers a lower interest rate on their mortgage.

“Which is essentially a price drop,” Marr said, “it’s the same thing … but it doesn’t necessarily show up in the data.” And it’s hard to get a sense of the scale of how that’s playing out, he added.

Here’s how it works, Marr explained: If a buyer pays $100,000 for a 20% down payment on their home at a 6.5% interest rate, they can instead allocate 10% for the down payment and the rest of the $50,000 spend on the purchase Mortgage rate cut to 5%.

“5% isn’t very bad, and it might seem like a lot of money, but… chances are you’ll get an incentive to refinance.” [in the future] and you have to pay the closing cost of that loan to refinance, which can be up to 15 grand,” Marr added.

Buyers are also switching to adjustable rate mortgages, which offer lower interest rates early in the term. ARMs account for nearly 12% of total mortgage applications, the Mortgage Bankers Association found Wednesday, which is high.

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Where prices fall

As for falling prices, Redfin noticed a couple of places.

They said house prices in Oakland, California, fell 3% year over year and 2% in San Francisco. New Orleans was also down 2%.

“Even in Atlanta or Orlando, we’re seeing buyers pulling out,” Marr noted.

So if you’re a buyer, don’t be put off by rising prices and stop looking, with sellers finally lowering list prices, he advised.

“There were occasions when prices really dropped and gave buyers the moment to come back in and make some good deals on homes that have lowered their prices,” he said.

Also, “There’s no harm in making a low-ball offer,” Marr added. “Some sellers are desperate, and that can be a good strategy… we’ve heard from some of our own agents that some buyers are making incredible deals right now.”

But if you rent for a year and have to wait for things to settle down, then do it, Marr said, and use those savings to build that dream home.

Do you have thoughts about the housing market? Write to MarketWatch reporter Aarthi Swaminathan at [email protected]

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