For the first time in nearly 18 months, the average U.S. home is selling for less than its list price.
That’s according to recent data from real estate brokerage Redfin, which uses a metric called the sale-to-list price ratio to track the relationship between a home’s listing price and its final sale price. The average sale-to-list-price ratio dropped to 99.8% over the four weeks ending on August 28 after consistently hovering above 100% since March 2021.
The change is the latest sign that the housing market, which saw prices balloon over the last two years amid a pandemic-induced boom in demand, is continuing to cool. Redfin data also shows sellers are continuing to cut prices, and that bidding wars have begun to fade away.
Asking prices for homes are still significantly higher than they were a year ago, but they've fallen since their peak earlier this summer.
Sales are slowing down, too, and the rapid appreciation in home values is losing steam. Data released last month by the real estate website Zillow showed that home values fell in the month of July for the first time in a decade.
All this indicates that the market is beginning to normalize as sellers adjust their expectations after the last two years. Realtor.com Senior Economist George Ratiu pointed out in a recent analysis that while more and more sellers are resorting to price cuts and a growing share is accepting buyer-friendly concessions like home inspections, "real estate market[s] continue to favor sellers" rather than buyers.
Why are home prices leveling off?
The culprit for the swift turnaround in the housing market is mortgage rates, which have risen more than two percentage points since the beginning of the year as the Federal Reserve attempts to tamp down on inflation.
But while higher rates are helping to push prices down on some consumer goods, they’re also making it more difficult for many prospective buyers to afford new homes. The typical monthly mortgage payment on a home with the median asking price is now $2,306, according to Redfin, compared to $1,665 a year ago. Prices for many items remain historically high due to the breakneck pace of inflation over the past year.
“Homebuyers’ budgets are increasingly stretched thin by rising rates and ongoing inflation,” Redfin Chief Economist Daryl Fairweather said in a statement, “so sellers need to make their homes and their prices attractive to get buyers’ attention during this busy time of year.”