Red-hot mortgage rates are giving home buyers and sellers cold feet. About 17% of homes that went under contract with real estate brokerage Redfin last month were called off.
The technology-powered real estate firm reported that approximately 60,000 deals fell through in September, marking the “highest share on record aside from March 2020,” the same month the World Health Organization declared the coronavirus pandemic.
Redfin Economics Research Lead Chen Zhao said the housing market is at “another standstill” although it’s completely different from the early days of the pandemic.
MORTGAGE RATES EDGE HIGHER
“Demand is slumping due to surging mortgage rates, but prices are being propped up by inflation and a drop in the number of people putting their homes up for sale,” Zhao said.
It’s forcing many to stay put especially if they locked in “a rock-bottom mortgage rate during the pandemic,” he added. As a result, deals are falling through and buyer completion is waning, according to Redfin.
Freddie Mac reported Thursday that the 30-year fixed-rate mortgage averaged 6.94%. A year ago the rate was 3.09%. These rates have driven monthly housing payments for buyers up more than 50% compared to a year ago, according to Redfin.
The number of home sales dropped 25% in September compared to a year ago, according to the residential real estate brokerage. New Listings also plunged 22%, which marked the largest drop since May 2020.
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On top of that, less than half of the offers from Redfin agents faced competition last month, which marked another record low since the start of the pandemic.
Zhao projected the housing market will get worse before getting better as the Federal Reserve continues to battle inflation.
FED BARRELS TOWARD ANOTHER 75 BASIS POINT RATE HIKE AS HIGH INFLATION PERSISTS
“The Federal Reserve will likely continue hiking interest rates,” he said. “That means we may not see high mortgage rates — the primary killer of housing demand — decline until early to mid-2023.”
The Fed meets in November. Traders are pricing in a more than 95% chance of another 75 basis point hike at the conclusion of the Fed’s two-day meeting Nov. 2, according to the CME Group’s FedWatch tool, which tracks trading. Only 4.9% think the Fed will go with a half-point hike instead. A basis point is one hundredth of one percent.
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