Home sellers are realizing it's no longer their housing market

The housing market has changed rapidly. Sellers who were once in the driver's seat earlier in the year are much more accommodating in closing a home sale as borrowing costs for buyers soar.
A growing number of home sellers have been forced to adjust their home prices in recent weeks. According to Redfin, an estimated 6.1% of homes for sale requested a price cut in the four weeks leading up to June 19 -- a record high as far as data goes back to early 2015.
This comes as mortgage rates hit 5.70% last week and are almost 2.5 percentage points higher than at the start of 2022, which has marginalized some budget-strapped buyers.
"If you overprice your home in any market, you're going to face resistance," said Lizy Hoeffer, owner and mortgage broker at Cross Country Mortgage LLC. “For the last three years, sellers could basically get whatever they wanted for their home. We are not in such a market right now.”
"Buyer budgets don't stretch as far as they used to"
The dream of owning a home is getting out of hand with rising costs for many prospective buyers.
"Homeowners considering moving should know that despite recent sellers having favorable housing conditions with high prices and quick sales, the tide is changing," Danielle Hale, Realtor.com's chief economist, told Yahoo Money. "Higher rates and home prices mean homebuyers' budgets aren't stretching as far as they used to."
According to Realtor.com, rising mortgage rates have increased monthly mortgage payments on an average-priced home by an estimated 60% more than a year ago. According to a recent report by MBA, the average monthly mortgage payment increased $513 from the beginning of the year through May.
For example, in Washington's most populous county, King County, the average price is over $1 million, according to Adriana Perezchica, real estate agent and owner of Via Real Estate Group. Despite the challenges, Latinos - who make up a large portion of their clientele - shop in the outskirts for an average of $550,000.
“Most of my clients are first time buyers with no knowledge or very little understanding of buying a property. "The majority work in the construction, labor and hospitality industries," Perezchica said. "They dream of owning their own home and are persuaded to buy it because of the high cost of renting it, but affordability is the main reason that keeps them from buying a home."
Realtors list a home for sale during a real estate agent's day in San Francisco, California. (Source: by Justin Sullivan, Getty Images)
Rising borrowing costs are eroding buyer confidence
Other signs point to more cautious homebuyers.
"Demand is still strong, but not nearly as strong as it was three or six months ago when the market was at a feverish pace," Jeffrey Ruben, president of WSFS Mortgage, told Yahoo Money. “We saw several offers, sometimes 10, 12 or 15 people were bidding on the same house. We don't see those stories today.”
As borrowing costs rise across the country, buyer confidence has plummeted. About 57.8% of home listings written by Redfin agents faced competition in May, seasonally adjusted, the lowest since February 2021. That's down from a revised 60.9% a month earlier, Redfin said. It's also down from 67.8% in April -- and marks the fourth straight drop in bidding war activity.
"The insane rush to find a home and hold on to historically low interest rates seen over the past two years is relegated to the history books," George Ratiu, manager of economic research at Realtor.com, said in a statement. "The result is declining housing demand, which is coming as many homeowners embrace the new normal and put their homes up for sale."
Only about 8% of Broward households can afford a mid-price single-family home. Experts worry how this could affect workers in the region's service and hospitality sectors - key pillars of the local economy. (Source: Mike Stocker, Sun Sentinel/Tribune News Service via Getty Images)
Home-buying contracts rebounded in May after six months of declines, likely reflecting a brief fall in interest rates last month. The National Association of Realtors Pending Home Sales Index rose 0.7% as homebuyers in the Northeast took advantage of a pause in mortgage rate hikes.
Still, homebuyers face tough affordability conditions, with the median list price averaging $447,000 -- pending home sales are down 13.6% from a year ago.
The effects of rising mortgage rates and home prices have effectively chilled the housing market. Redfin data showed that touring activity on June 19 was down 6% year-to-date, compared to a 24% increase a year earlier. Mortgage applications were down 10% year over year and fewer people searched Google for "homes for sale" in the week ended June 18, a 14% year over year decrease.
"Typical first-time buyers are still very scarce," Len Kiefer, Freddie Mac's deputy chief economist, told Yahoo Money. "Now you have these super high prices, so it's a big pinch for these first-time buyers. Still, despite some challenges, there is very strong demand.”
A pending sale sign sits in front of a home listed for sale on March 18, 2022 in San Rafael, California. Existing home sales fell 3.4% in May as mortgage rates hovered above 5%. Month-over-month, sales fell in three out of four regions in the US. (Image credit: Justin Sullivan, Getty Images)
Inventory levels remain a concern
Make no mistake: The home buyer pool may be shrinking, but it's still not a buyer's market.
According to Joe Castillo, the designated managing agent and co-owner of REMAX Mi Casa in Chicago, buying activity at his agent's office was up 26% year over year -- but a lack of available sales listings has slowed homebuilding activity.
"Our biggest concern right now, just as it has been for the past two years, is the lack of inventory," Castillo said. "We have hundreds of pre-approved buyers looking for homes that don't exist due to a lack of affordable homes for sale."
Other indicators continue to signal a competitive market.
Redfin data showed that around 34% of signed homes accepted an offer within a week of launch, down 36% from a year ago. Meanwhile, 48% of homes were signed within the first two weeks on the market, down slightly from 50% a year ago.
Despite rising prices, homes for sale stayed on the market for an average of 17 days. According to Redfin, that's a rise from the record 15-day low recorded in May and early June -- indicating surging buyer demand. About 55% of homes sold above list price, Redfin reported, up from 53% a year ago.
"Buyers are very frustrated," Nadia Evangelou, senior economist and director of forecasting at NAR, told Yahoo Money. “It's very competitive and many first-time homebuyers can't find a home and can't compete with existing homeowners with all the cash offers from their built equity. However, if mortgage rates rise, everyone should be affected.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.
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