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With interest rates rising, a new report shows sales down year over year and more homes selling for below asking prices.
The U.S. housing market slowed during the past month as mortgage rates climbed to levels not seen in over a decade, according to a report released on Thursday.
Real estate brokerage Redfin said pending home sales were down 19% year over year during the four weeks ending Sept. 4. Viewings of for-sale homes fell and the typical home sold for just shy of its final list price during that time—that follows 18 months of homes selling above asking prices on average.
This week, the average mortgage rate was 5.89%, up sharply from 2.88% a year ago, based on Freddie Mac data. Federal Reserve officials, meanwhile, are indicating that they could keep hiking interest rates as part of efforts to control inflation, which has the potential to push rates for home loans even higher.
“The housing market always cools down this time of year, but this year, I expect fall and winter to be especially frigid as sales dry up more than usual,” Daryl Fairweather, Redfin's chief economist, said in a statement.
For states and localities, shifts in the housing market can affect property tax collections, which generally rise and fall following changes in property values.
Even though the red hot Covid-era housing market appears to be ending, median home sale prices during the past month were up 6% compared to a year ago, at about $369,000, Redfin says.
The only two metro areas that saw median prices fall year over year, according to the report, were San Francisco and nearby Oakland in California's Bay Area. Sale prices were down 7% in San Francisco and 1.4% in Oakland. Still, the San Francisco market is expensive compared to the rest of the country, with a median home price of nearly $1.5 million in July, according to Redfin figures.
Mortgage costs during the past month reached $2,337 for a median home at the 5.89% rate, a 40% increase from $1,664 a year ago at the 2.88% rate, the company's report said.
It also said 35% of homes sold above their list prices, down from 49% a year earlier and that an "average sale-to-list price ratio," which measures how close homes sell to asking prices, slipped to 99.7%, compared to 101.2% last year.
The slowdown in sales and rising mortgage rates are happening against the backdrop of a continued affordable housing gap in many parts of the country. Freddie Mac estimates show that, as of late 2020, the country was about 3.8 million homes short of what would be needed to adequately meet demand.
Redfin's full report can be found here.