Housing Market Sees Increase in Price Cuts as Sellers Adjust to High Costs and Rates

The housing market appears to be shifting towards favoring buyers, as indicated by a significant rise in price reductions for homes listed for sale. According to a new report from Realtor.com, the share of available listings that saw a price cut increased to 18.9% in July, marking a 3.4% rise compared to the same period last year. This figure represents the highest level of price reductions in two years.

Typically, July is a peak month for home sales, and price cuts during this time are unusual. However, this year presents a different scenario, as sellers are attempting to attract buyers who are hesitant due to high costs and elevated interest rates. Ralph McLaughlin, a senior economist at Realtor.com, explained, “First, rates remain higher than expected, which means there is less buyer activity. Second, the prospect of lower mortgage rates coming this fall may have induced some buyers to wait. This combo has led sellers to lower their prices in order to attract more buyers.”

The report also noted a decline in median home prices, which fell to $439,950 in July, down from $445,000 in June. This trend was observed across the majority of the 50 metro areas monitored by Realtor.com, with 47 of these cities seeing an increase in the share of price reductions compared to last year.

Some cities experienced particularly notable increases in price reductions. Tampa, Florida, saw a 9.7% rise, Charlotte, North Carolina, observed a 9.5% increase, and Phoenix recorded a 9.4% jump. McLaughlin commented on these trends, saying, “These are places where sellers have had a good run over the past few years with rising prices, but with the effects of higher rates fully settling in, sellers are having to come back down to earth with their price expectations.”

Several factors contribute to the current affordability crisis in the housing market. Years of underbuilding have led to a shortage of homes, a situation that was further aggravated by the rapid rise in mortgage rates and the high cost of construction materials. Over the past three years, elevated mortgage rates have created what some are calling a “golden handcuff” effect in the housing market. Sellers who secured record-low mortgage rates of 3% or less during the pandemic are now reluctant to sell, further constraining the supply of homes and leaving few options for potential buyers.

Economists predict that mortgage rates will remain high throughout most of 2024, with a decline only expected once the Federal Reserve begins cutting rates. However, even then, rates are not likely to return to the historically low levels seen during the pandemic.

Freddie Mac, a major mortgage buyer, reported that the average rate on a 30-year loan recently dropped to 6.47%, the lowest level in over a year. Although this is down from a peak of 7.79% in the fall, it remains significantly higher than the pandemic-era lows of around 3%.

A survey conducted by Zillow indicates that most homeowners would be nearly twice as likely to sell their home if their mortgage rate were 5% or higher. Currently, about 80% of mortgage holders have a rate below 5%, which further limits the number of homes entering the market.

This combination of factors—high mortgage rates, the reluctance of current homeowners to sell, and the affordability crisis—continues to shape the housing market, making it increasingly challenging for buyers to find suitable homes within their budget. As sellers adjust their expectations and the market responds to ongoing economic conditions, the landscape of home buying and selling may continue to evolve in the months ahead.