One in five sellers dropped their asking price as interest rates rise in the U.S.

Home sellers are becoming concerned as the once-booming housing market is rapidly cooling down. In less than two years, residential property prices in the United States rose by an astounding 43%. However, that’s over now: Rising mortgage rates have caused the U.S. housing market to abruptly decelerate, which could possibly erase some of those gains.

According to Realtor.com, one in five sellers lowered their asking price in August. Last year, that share was just 11%. According to a recent report by Redfin, the average home sold for less than its list price during the four-week period that ended on 28 August. This is the first time in over 17 months that such an event has occurred.

A few experts have already estimated that domestic housing prices in 2023 will, for the first time since 2008, see a decrease from the previous year. In the case of a severe housing downturn, Fitch Ratings predicts a 10% to 15% national home price drop, but this is not necessarily the case. According to Goldman Sachs and Zillow, U.S. home prices will approximate 1.8% and 2.4% growth in the next twelve months, respectively.

Six months ago, homes were selling much faster due to both strong demand and limited supply. Bidding wars were commonplace, and a seller could frequently receive a signed contract in less than two days. The average home stayed on the market for an additional five days in August, compared to last year.

The number of homes for sale is also increasing rapidly, by approximately 27% from last year, although fewer sellers are choosing to list their home. According to the National Association of Realtors, pending sales in July, which represent contracts for previously owned houses and are the most recent data available, were nearly 20% lower than they were in July 2021.

As more homes are hitting the market for sale, buyers are no longer feeling the sense of urgency that they did a few years ago when inventory was scarce. As a result of this shift, coupled with higher mortgage rates, the competition continued to cool in August. Listing price trends indicate that home shoppers are tightening their purse strings.

According to Realtor.com, the median listing price decreased to $435,000 in August from $449,000 in July. Since January, mortgage rates have risen steadily and hit a recent peak in June before declining slightly in July and much of August. Mortgage rates are on the rise again, and they’re now nearly as high as they were in June.

Cities That Experienced Remote Work Boom Are Hardest Hit by Housing Market Decline

Although industry insiders disagree about whether national house prices will drop in the next year, they agree that some local markets will experience price decreases. According to experts, some buyers in certain areas may already be receiving some relief with lower home costs.

The average market saw 34% of home listings change pricing in July, according to Redfin’s analysis of 97 regional housing markets. Buyers began to expect lower prices in a cooling market, so sellers had to react by cutting their own prices. With the likelihood of declining home values and increasing mortgage rates, buyers were unwilling to pay high prices, and with more housing options available, they had larger inventories to pick from. Prices will stabilize as sellers adjust to the changing market.

Although a temporary decrease in prices doesn’t always mean that yearly home prices will also drop, it does change the market’s path. Usually, there is a spike in list price cuts long before a market hits an actual year-over-year price decline.

The markets most impacted by housing price cuts are the same areas that experienced the highest prices during the pandemic. Some markets that experienced an overwhelming number of people relocating from other states—places like Boise, Denver, and Salt Lake City—may now be more prone to price drops as most remote work has been finalized.

The increase in house prices in Boise during the pandemic housing boom was over 60%. However, as the market changed, Boise became one of the most impacted cities. The percentage of home listings in Boise that saw a price cut increased from 30% in July 2021 to 70% in July 2022.

According to data compiled by John Burns Real Estate Consulting, home values in Boise are decreasing already. Zillow data already reveal month-over-month Boise price reductions. John Burns Real Estate Consulting predicts that, before the end of the year, Boise will be the first U.S. market to experience a year-over-year price decline.

The real estate market in the West has been shifting rapidly since the pandemic housing boom began. Fifty-eight percent of Denver listings saw a price cut in July, 56% of Salt Lake City listings, and half of the listings in Phoenix saw a price cut.

Areas where housing was most unaffordable and detached from income are now cooling down the quickest. Home prices in places like Boise and Austin increased to seemingly unreasonable levels during the pandemic housing boom. Would-be purchasers in those areas have been feeling the pressure of record home price increases since early this year, when historically low mortgage rates vanished. That’s why, this summer, many shoppers in places like Boise and Austin decided to put their search on hold.

Going forward, these housing markets are most likely to experience drastic price decreases. According to Moody’s Analytics, national home prices could drop anywhere from 0% to 5% during this current housing market slump. However, in “significantly overvalued” markets such as Boise and Austin, Moody’s Analytics forecasts a 5% to 10% drop in home values. If a recession were to occur, Moody’s Analytics predicts national home prices would fall 5% to 10%, and declines in the nation’s 187 significantly “overvalued” markets could be as high as 15% to 20%.

Are We Entering a Housing Market Recession?

After a rapid rise, we’re now seeing a retreat in real estate prices, but the actual question is how far will house values fall? Rising interest rates and fewer home sales have caused real estate prices to drop. The housing boom associated with the COVID-19 pandemic is over, which means that bidding wars, all-cash offers, and increased home prices are mostly a thing of the past.

When you can discover a home that you can afford, it’s a good time to get into the market. Unfortunately, higher mortgage rates are making it more difficult for many people to enter the housing market. Buyers are also concerned about a housing recession, but is this worry justified?

When home sales drop for six months in a row, it’s known as a housing market recession. According to new data from the National Association of Realtors (NAR), existing home sales have decreased 5.9% since July 2022 and 20.2% in the last year.

The housing market recession is being driven by two primary forces: increasing interest rates and rising construction costs. Many new buyers are hesitant to buy a home in today’s market, in which interest rates are higher than we’ve seen in decades. These two forces have driven many potential homebuyers away from the real estate market.

Because homes are staying on the market for extended periods of time, buyers are beginning to understand they have more control. Buyers are asking for further repairs since they can now make conditional offers as a result of their increased bargaining power. Because of the higher interest rates, several purchasers were unable to finalize the transactions because they no longer qualified for a mortgage as a result of them.

What the Cooling Real Estate Market Means for the Mobility Industry

Lower house prices and less competition will make it easier for relocating employees to find and buy a new home at their ultimate destination, but it is also important to consider the employee’s home at their starting point. The cooling real estate market means that homes are sitting on the market for longer and sellers are making less from their sales. These factors might delay relocation or even force employees to reconsider relocating altogether. Mobility professionals are now wondering if Guaranteed Buyout (GBO) home sale programs will rise in popularity to help speed up the relocation process.

A GBO is a guarantee to buy the transferring employee’s home after a designated marketing period. An employer or a relocation management company orders two appraisals of the home with a GBO. The company will take the average of the two appraisals and use it as the sales price. The company then sells the property to a new buyer after the employee relocates.

While a GBO frees employees to relocate quickly, these kinds of programs require that organizations take on the risk and financial responsibility of buying and then reselling a house.

Despite delays in selling homes and fears of a housing recession, it is an exciting time to be a homebuyer. For the first time in years, we’re seeing steady inventory growth and a slowing of house price appreciation. After such a long period of selling dominance, the market is now rebalancing in favor of buyers. There is still ground to make up with new construction, but the shift in recent months has provided some much-needed reprieve to homebuyers.

Learn more about GBO programs and other real estate trends at the 2022 Global Workforce Symposium. During the breakout session titled “Econ 101: It’s All About Supply & Demand, an Outlook for the Economy & Real Estate 2022-2023,” Stewart Title Relocation Services’ chief economist, Dr. Ted Jones, will cover topics such as the massive affordability erosion, rising interest rates, and a softening housing market.