Sellers face a tough choice as 7% mortgage rates suppress demand
Reducing prices or delisting may be the most viable options for homesellers in some markets as higher borrowing costs continue to deter buyers.
Key points:
- Elevated mortgage rates are causing a housing market downshift, with homes sales, mortgage applications and touring activity all slowing.
- While pending sales saw a slight uptick between July and August, they fell 4.7% year-over-year.
- Inventory is modestly higher compared to a year ago, giving buyers that are still in the market more leverage.
Following a week of downbeat economic and housing data, a big question heading into fall is how homesellers will react: Will they cut prices or decide to pull their homes off the market?
Key housing indicators are pointing toward a slowdown in many areas this fall. With 30-year mortgage rates expected to hang around 7%, pending sales, mortgage applications, existing home sales and touring activity are all below levels seen a year ago.
High mortgage rates causing early 'fall stall'
Because financial markets had already priced in a Fed rate hike prior to Wednesday's announcement, 30-year rates actually fell slightly today, according to Mortgage News Daily. The rate was pegged at 7.19% on Sept. 17, down from 7.24% the day before, but still nearly a full percentage point higher than a year ago.
Freddie Mac's survey, which tracks weekly averages using a different set of metrics, showed a different trend. It put the 30-year rate at 6.95% for the week ending Sept. 17, a big jump from last week's average of 6.76% and the survey's highest level since January 2025.
Higher financing costs are pushing buyers to the sidelines during a time of year when they usually have more leverage, according to Jake Krimmel, senior economist at Realtor.com. That leaves sellers with some tough choices over the coming weeks.
"For sellers, the question now is whether they respond by slashing prices or delisting their home altogether. The stall in fall is coming early this year," Krimmel said.
Mortgage applications, pending sales decline
Overall mortgage application activity fell 4.1% for the week ending Sept. 11, according to the Mortgage Bankers Association. Refinance loans, which were down 9% for the week, accounted for much of the decline. The seasonally adjusted Purchase Index dipped 1% compared to the week before, while on an unadjusted basis, the Purchase Index fell 19% year-over-year.
Pending sales inched up 0.3% from July to August but fell 4.7% year-over-year, the National Association of Realtors reported. That drop suggests closed purchases may also be down in the coming months. The current rate of signed contracts is running roughly 30% below the pace seen during the pre-pandemic years, noted Lawrence Yun, chief economist at NAR.
On a weekly basis, pending sales have slowed further, according to Redfin's four-week rolling average, which puts pending sales at the lowest level in three years. Median homes prices, meanwhile, were up 2% year-over-year.
Redfin estimates overall inventory is 1.5% higher than it was a year ago, suggesting that — so far — the market isn't seeing a massive pullback by sellers. On the buyer side, however, touring activity is down 3% since January. A year ago, it was up 26% for the same time period.
Lower mortgage rates hold the key to demand
Any chance of a fall season rebound will likely be influenced by factors like the Middle East war and investor sentiment, which could influence borrowing costs, according to Sam Williamson, senior economist at First American.
"Over time, firmer Fed action could help steady the bond market and open the door to lower mortgage rates, but only if investors become more confident that inflation is coming under control," Williamson said.
"Until then, higher incomes and slower house price appreciation may restore some buying power, though elevated mortgage rates will limit how much potential demand translates into sales."