Home sellers are dropping prices, but don’t celebrate yet

The chronically troublesome housing market is seeing more price drops, but that doesn’t necessarily translate into relief for homebuyers.

Data from real estate firm Redfin Corp. shows 6.4% of active listings on the platform had a price drop through the week ending May 26. While that’s not a massive portion of listings, the percentage is substantially higher than the 4.4% of listings with price drops recorded during the same time in 2023.

It’s also higher than the percentages seen at the same point in 2022 and 2021.

Redfin Chief Economist Daryl Fairweather said the housing market right now is seeing some slight signs of softening. That includes fewer homes being sold within two weeks after being listed — down to 42.9% in the week ending May 26 from 45.7% the same time last year.

Additionally, new listings are up about 7.8% over the same time in 2023 — although both figures are still below previous years’ marks, according to Redfin. 

So where’s the hiccup?

“Interest rates are still high, so the housing market is still being held back both in terms of supply and demand,” Fairweather said. “Many people who are first-time homebuyers are going to the rental market instead because it’s more affordable in the short term. And owners with low interest rates see how expensive it is too. Their mortgage payments would go up a lot even if they were to move to a similarly priced home. That holds back supply.”

The idea that homeowners are hesitant — or “locked in” to their existing homes — is widespread, driven by the extremely low interest rates on home mortgages during the height of the pandemic. The Federal Reserve began hiking rates rapidly in 2022, more than doubling mortgage interest rates.

The combination of high interest rates and high prices has helped push the median monthly housing payment to a record $2,843, according to Redfin, up 13% over the same time last year. 

Additionally, the price drops being seen on the market contrast with rising home prices overall, as homes continue to become more expensive. It might mean many sellers simply overshot their home value when trying to sell. 

“Just because listings are up doesn’t mean they are priced appropriately to make a sale,” Fairweather said, pointing to condos as a class that is harder to sell.

That slight softness being seen in the market isn’t a sign of any true price reductions or pending market corrections, Fairweather said. In fact, if mortgage interest rates come down, whether due to good news on inflation or a Federal Reserve announcement, homebuyers are likely to flood back into the market, once again reducing supply and further driving up prices.

“It could happen at any moment. If rates were to fall, people would immediately be more motivated to buy a home,” Fairweather said. “You would see more competition for the limited numbers on the market and more homes going for asking price.”

Ultimately, the current market is the result of an artificially restricted housing supply in some of the most popular places to live, Fairweather said. She attributed some of that to zoning rules that prohibit building new homes in those areas

“There just isn’t enough new housing coming online to meet demand,” Fairweather said. “That’s what you need for it to be a buyer’s market. We are very far away from that.”

Baby boomers, millennials, Gen Z are in a housing market tug-of-war

A report from Redfin earlier this year found that the length of time people stay in their homes has more or less doubled since 2006. In that year, the median homeowner spent about 6.5 years in a home. That number peaked at 13.4 years in 2020 before dipping to 11.9 years in 2023.

About 56% of baby boomers have lived in their home for at least 10 years, according to the study, while 35% of Gen Xers have lived in their home for at least a decade. Just 7% of millennials have stayed in their home for 10 years or longer.

The homes older Americans own also tend to be larger. A separate Redfin analysis found empty-nester baby boomers own twice as many three-bedroom-plus homes as do millennials with kids. 

The houses that do come up for sale are increasingly in need of renovations. A report from home-improvement company Leaf Home and Morning Consult found 73% of baby boomers have been in their current homes for 11 years or more, and over half own homes built in 1980 or earlier that have never been renovated. A majority say they have no plans to do so, either.

By Andy Medici – Senior Reporter, The Playbook, The Business Journals

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