A large number of sellers across the United States are cutting prices as high mortgage rates and fears of a possible recession put many potential buyers in an awkward position.
A recent report by Redfin indicated that more than 25% of home sellers in three-quarters of the metro areas the brokerage tracks across the country cut their asking prices in June.
In some areas, more than 60% of sellers have reduced their prices which, according to the report, “has become a common feature of the cold housing market, especially in places that were popular with homebuyers earlier in the pandemic.”
Thirty-year mortgage rates are much higher than they were earlier in the year, which “really consumed homebuyers’ budgets,” Daryl Fairweather, chief economist at Redfin for FOX Business, told FOX Business.
According to mortgage buyer Freddie Mac, 30-year fixed mortgage rates averaged 5.54% this week, up from 5.51% a week ago.
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Fairweather added that some homebuyers have had to pull out of the buying market altogether and take on the rental market, while others are still in the game but “less willing to bid for asking price or entertain expensive homes.”
As buyers are “more nervous”, sellers make concessions and lower prices. Fairweather said sellers no longer have the luxury of choosing between dozens of offers as they would have had earlier this year.
Boise, Idaho, had the largest share of buyers, 61.5%, who lowered their asking prices, according to the analysis. That’s up from 25.7% in June 2021.
Denver, Colorado and Salt Lake City, Utah were not far behind, with their price down 55.1% and 51.6% of sellers, according to the report.
Almost half of the sellers are in Tacoma, Washington; Grand Rapids, Michigan and Sacramento, California also reduced their prices.
Boise, Salt Lake City, Sacramento and Tampa were popular hotspots between summer 2020 and March 2022, “as homebuyers relocated from expensive coastal duty stations, taking advantage of lower mortgage rates and telecommuting,” according to Redfin.
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However, its popularity has worked against them.
“Its popularity has led to fierce competition for a limited number of homes for sale, driving up prices and making them unaffordable for many buyers,” the report continued.
For example, a typical home in Boise sold for $550,000 in May, up 60% from two years ago, according to the report. Similarly, prices for a typical home in Sacramento increased 44% to $610,000.
“Consumer sentiment is making home buyers more reluctant to expand their budgets,” Fairweather added.
Not only are homebuyers concerned that inflation will continue to rise, but they are also concerned about what will happen if the economy falls into a recession and unemployment rates rise, according to Fairweather.
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“Homebuyers don’t want to be in a position where they can’t afford their mortgage because they don’t have the income they thought they would,” Fairweather added.
Here are the top ten major regions that experienced a decline in the largest share of sellersping Prices in June:
- Boise, Idaho: 61.5%
- Denver, Colorado: 55.1%
- Salt Lake City, Utah: 51.6%
- Tacoma, Washington: 49.5%
- Grand Rapids, Michigan: 49.3%
- Sacramento, California: 48.7%
- Seattle, Washington: 46.3%
- Portland, Oregon: 45.7%
- Tampa, Florida: 44.5%
- Indianapolis, Indiana: 44.1%
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