More than one in five homes on the market had a price drop last month — a record 22% of houses for sale.
For the sake of comparison, about 15% of home sellers dropped their list prices during a four-week span last May, and a Redfin graph shows that only 6% to 7% of sellers were slashing asking prices during peak periods earlier this year and in 2021. The 22% figure from September is the highest point in Redfin's analysis of price drop information, which stretches back to 2012.
The average rate on a 30-year mortgage is now approaching 7%, almost four percentage points higher than it was a year ago. The monthly mortgage payment on a median-priced home has surged 51% over that time, from $1,698 to $2,559, according to Redfin. Fewer people in the market can afford that kind of expense, hence the need for sellers to cut their list prices.
The rising cost of borrowing means that some potential buyers are considering smaller homes or more affordable cities, while others are dropping out of the market entirely. At the same time, some homeowners who would have otherwise looked to sell are staying in their homes while they wait for better conditions.
Those sellers that remain in the market are being forced to slash prices to stay competitive, especially now that home price growth is slowing down.
Where home price drops are most common
The trend toward cutting home list prices is especially extreme in pandemic hotspots. Nearly 68% of homes on the market in Boise had a price drop last month, along with more than 58% of homes in Denver and more than 54% of homes in Phoenix, Redfin found.
Unfortunately for both buyers and sellers, “the housing market is going to get worse before it gets better,” Redfin Economics Research Lead Chen Zhao said in a blog post. That's because the Federal Reserve will likely continue to raise interest rates while inflation remains high. Zhou doesn’t expect mortgage rates to start falling until the beginning or middle of 2023.
As Money contributor Aly J. Yale reported recently, the fall housing market will "not really be ideal for anyone," because costs remain high for buyers while sellers remain largely stuck in place due to high mortgage rates and a general slowdown in market activity.