Mortgage rates retreated further this week, hitting their lowest point since September, but economic uncertainty continues to weaken homebuyer demand.
The rate on the average 30-year fixed mortgage declined to 6.33% this week from 6.49% the week prior, according to Freddie Mac. Rates have fallen three-quarters of a point in the last month, as signs of cooling inflation have raised prospects that the Federal Reserve will slow its aggressive interest rate hikes.
Still, with rates more than double what they were at the start of the year, many homebuyers’ budgets have yet to recover as affordability remains a top concern.
“The overall sentiment that I’m experiencing with clients is skittishness, they want to see what the market does and make the right approach,” Scott Sheldon, branch manager at New American Funding, told Yahoo Money. “They want to wait until January… see if interest rates start to slowly trickle down [more].”
Buyers retreat despite lower rates
After three weeks of increased homebuyer activity, demand for mortgages pulled back 1.9% last week, according to the Mortgage Bankers Association’s latest survey of applications, with purchase activity down 3% from a week ago. Overall, purchase applications were down 40% from a year ago, according to the MBA, the decline driven by a sharp drop in first-time buyer activity.
“The overall market is starting to show signs that we can’t really support 7% mortgages anymore,” Sheldon said.
For instance, the average $2,150 monthly mortgage payment accounts for 40.6% of the monthly salary of a household earning the median income of $72,000. And although home prices and mortgage rates have shown some signs of cooling, Realtor.com projects that it will take until 2025 for home affordability to stabilize in the U.S.
“It’s going to take a long time before the housing market gets back to a place where all of those factors are back to normal,” Danielle Hale, chief economist at Realtor.com, told Yahoo Money.
Sellers mark down their listings
Those still left in the market are using the overall downturn in demand to negotiate on price with sellers — and it seems more deals are going in their favor.
According to Realtor.com, the share of homes with a price reduction in November was 19.6%, up from 9.2% a year ago. The share is now well above pre-pandemic levels, but remains slightly below October’s 20.9% share.
“The only way that buyers can make up for [higher home prices] is negotiation on a purchase price when rates drop,” Sheldon said. “If they wait too long, they’re not going to have that luxury later because buyers are going to be re-emerging back to the market, which means multiple offers again.”
Still, many sellers discouraged by falling home prices are leaving the market altogether.
The share of newly listed homes declined 17.2% on a year-over-year basis in November, a greater decline compared with last month's 15.9% decrease. De-listings were also on the rise, according to Redfin, as a record 2% of homes for sale were pulled from the market each week on average during the 12 weeks ending November 20, versus 1.6% last year.
“Some sellers are having a hard time grasping that we’re not in a housing-market frenzy anymore,” Heather Kruayai, a Redfin real estate agent, said in a news release. “It’s tough for them to swallow that they missed the boat on getting a high price.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.