The steep rise in mortgage rates has helped the U.S. housing market to rebalance after the pandemic buying frenzy. But as the 30-year fixed mortgage rate topped 6% the week ending September 15th, sellers may have finally lost the upper hand.

A new Redfin report highlights the challenges buyers and sellers face in the shifting market, while a new Zillow report focuses on declining home values. 

Here’s what you need to know. 

Mortgage rates up to 6.02%

For the week ending September 15, the rate for a 30-year fixed mortgage hit 6.02% — the highest since November 2008. 

Freddie-Mac-mortgage-rates-chart

For homebuyers watching the rise and fall of rates since earlier this year, the surge back up to over 6% feels like a clear signal to put their home ownership aspirations on hold. Sellers seeing the decline in buyer demand are wondering whether it’s still a good time to sell. 

Higher monthly payments deter buyers

Buyers faced with higher mortgage payments are understandably hesitant. Homeowners locked into a lower mortgage rate are weighing the advantages of selling against the cost of buying at a higher rate. 

And with home values slipping for the second consecutive month—per Zillow®’s latest market report—the seller’s advantage seems to be slipping right along with it. 

Substantial day-to-day and week-to-week rate movements mean that many potential buyers are able to qualify for a loan one week, but not the next, or vice versa. Even buyers able to afford a house at current rates could feel frozen, waiting for mortgage rates to fall dramatically again, like they did from the end of June to mid-July, when rates dropped 50 basis points in just two weeks.

Skylar Olsen

Chief Economist at Zillow

Even qualified borrowers are faced with mortgage payments that demand over 30% of their income, another factor holding many potential buyers at bay. 

Housing inventory

Aside from mortgage interest, housing inventory is another huge factor influencing the market. 

At the height of the COVID pandemic, inventory was down to 1.8 months, meaning it would take that long for the available supply to be bought at the current consumption rate. 

Historically, less than four months of supply is a seller’s market. Four to six months is relatively balanced, while anything above six months is a buyer’s market. May’s supply was at two months, which is still well within seller’s market territory. 

The current months of supply has increased to 2.9 months, reaching the highest point since July 2020. 

The rapid climb since then is due to the following: 

  • Mortgage rates going up to 6% and beyond
  • Buyers holding off or being priced out of the market 
  • Days on market going up, boosting the number of active listings

Months of supply is still below the historical standard of four months for a balanced market, but for many homeowners, it no longer feels like a seller-friendly market. Along with rising days on market, the sale-to-listing-price ratio has dipped below 100%

Redfin-Average-home-sold-under-list

A more balanced market favors no one

It may not be a seller’s market anymore—at least not overwhelmingly so—but it’s not a buyer’s market, either. A balanced market is balanced because it doesn’t give either side the upper hand. 

Potential buyers—even those who can qualify for a mortgage loan—are more reluctant to buy, given the higher monthly mortgage payment. On the other hand, rents are also going up. 

Potential sellers—especially those who’ve locked down a lower mortgage rate on their existing homes—are reluctant to give that up unless the benefits of selling outweigh the increased cost of buying a new home. 

Homebuyers have more power than they’ve had since the ‘before times.’ Unfortunately, it’s increasingly hard for buyers to make use of their newfound power thanks to the affordability pressures of rising mortgage rates and a dearth of homes being listed for sale. A true buyers market would have more homes for sale than there are buyers, with a wide variety of homes for sale by style, price, and location so when a buyer finds the home that matches their preferences they face little competition and can offer under asking price with healthy inspection and financing contingencies in place. Today’s average buyer is paying less than the list price, but they continue to struggle to find a home that meets their criteria and budget.

Taylor Marr

Redfin Deputy Chief Economist

Buyer demand indicators

Redfin’s report pointed to the following indicator of cooling buyer demand: 

  • Fewer people are searching “homes for sale” on Google. During the week ending September 10th, searches were down 26% year-over-year. 
  • Redfin’s seasonally adjusted Homebuyer Demand Index, measuring requests for home-buying services involving Redfin agents, is down 11% from a year ago. 
  • Touring activity, as of September 11th, is down 14% from the beginning of 2022, compared to an 8% increase a year ago. 
  • Mortgage purchase applications for the week ending September 9th are up 0.2% from the week before and down 29% year over year. 
Redfin-Homebuyer-Demand-Index

Lack of competition driving up inventory

The lack of competition among homebuyers has led to an increase in inventory and days on market for listed homes. Homes sold spent a median of 28 days on the market, up from 22 days a year ago and the record low of 17 days set in May and early June. 

Redfin-Homes-Sold-Median-28-days

Also, compared to 48% from a year earlier, 34% of homes sold above their list price. And 7.2%, on average, saw a price drop—up from 3.8% a year ago. 

Redfin-34-pct-homes-sold-above-list-price

Not surprisingly, fewer buyers means fewer offers and a slimmer likelihood of offers over the asking price. 

Low-cost markets are the most competitive right now, while prices in expensive markets and pandemic boomtowns are seeing the fastest drops in home prices. 

Affordability is driving the current market

The affordability challenge for buyers is a major factor behind the increase in active listings, but as more sellers decide to hold off, the decline in new listings will offset that more and more. 

Granted, not all markets are equally susceptible to affordability challenges; the luxury real estate market is thriving and expected to remain strong. 

But for many buyers and sellers, the rising cost of buying a home in the U.S. means that, more than ever, they’ll rely on skilled and knowledgeable real estate agents to help them make the right decision. 

Ultimately, the decision to buy will have more to do with personal reasons (like a growing family) than with mortgage interest. But you, as the agent, can help them see through the daunting headlines to the right home for them.