Mortgage rates, dipping from a 23-year high, have ushered in an early festive season for home buyers and sellers alike. Zillow’s latest market report reveals a decline in monthly costs for new mortgages, a slow return to normal inventory levels, and an unusual prevalence of price cuts.
Zillow Chief Economist Skylar Olsen provides an optimistic outlook for home buyers. “Despite facing high-cost challenges, buyers can find some solace in the current market,” Olsen said. “Home prices are cooling off faster than usual as listings from existing owners increase and total inventory gradually recovers. Although mortgage rates remain above 7%, price cuts are surprisingly frequent, and mortgage costs have slightly eased. These factors favor buyers who choose not to halt their home search during the off-season.”
From October to November, monthly mortgage costs on a typical home purchase dropped by 1.5%, providing some relief to buyers grappling with extreme cost pressures. This decrease comes after a peak in October, when costs rose by 9% annually, nearly 120% higher than pre-pandemic levels. Additionally, mortgage payments as a percentage of household income have also fallen from October’s record high of 40.4% to 38.6% in November, indicating improved affordability.
This decline in monthly costs is primarily attributed to falling mortgage rates. However, rates remaining above 7% have also contributed to a decrease in home values. The Zillow Home Value Index fell by 0.4% from October to November, a slightly quicker decline than what was previously considered typical for this season. Despite this, the average national home value has increased by 2.8% compared to last year, now standing at $347,415.
Hartford, Milwaukee, and San Diego have seen the strongest annual growth, with increases of 11.3%, 8.5%, and 7.6% respectively, due to demand outstripping supply. Conversely, the largest annual drops have been observed in New Orleans (-8.9%), Austin (-8.2%), and San Antonio (-3%), where a surge in new construction is helping to rebalance the markets.
After nearly two years of a trickle of new listings, some sellers are finally reentering the market. New listings were almost 35% below pre-pandemic norms in April, but recent months have seen this deficit reduced to just 14%. However, new listings did fall by 20.5% month-over-month — a smaller drop than usually expected for November.
In response to affordability challenges, sellers have started reducing list prices. The proportion of listings witnessing a price cut in November was unusually high at 22.6%, even higher than October’s rate of 25%. As we move into winter, this trend may provide buyers with more room for negotiation. Notably, price cuts have been most common in Tampa (33%), Indianapolis (31.7%), Salt Lake City (30.8%), and Nashville (30.5%).
As mortgage rates slightly decrease from their October peak, some current homeowners may be escaping the “rate lock,” particularly in the Midwest, the Great Lakes region, and the South, which have seen the smallest declines in new listings since the pandemic’s onset.
Despite these positive signs, total inventory is still recovering slowly from its pandemic deficit and remains down by 37.2%. However, with falling mortgage rates, increasing inventory, and frequent price cuts, the market appears to be shifting in favor of home buyers, offering a glimmer of hope in an otherwise challenging landscape.
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