- Home deals are now dropping at the fastest pace since 2020.
- As competition cools in the housing market, buyers are gaining more leverage.
- Redfin economist Taylor Marr says the real estate market has a "hangover" after two years of unsustainable highs.
The power is shifting in the real estate market.
That's because mortgage rate hikes have led to a slowdown, and with less buyers competing for homes, sellers are being forced to come down to earth.
As sellers adjust their behavior, Taylor Marr, the deputy chief economist at Redfin, says it's already changing the housing market.
"The housing market isn't crashing, but it is experiencing a hangover as it comes down from an unsustainable high," Marr said in a statement to Insider, adding that a lot of home sellers are already beginning to drop their asking prices.
Data from Redfin shows that 22.4% of the homes that were for sale in June experienced a price drop, marking the highest share on record. The decline is attributed to mortgage rate hikes that have added much as $400 to a typical borrower's monthly payments. Researchers say because of this, homes are now sitting on the market longer and being bid up less than they were earlier during the spring.
"Rising mortgage rates are also forcing some buyers to cancel home purchases," Marr said. "If rates were at 5% when you made an offer, but reached 5.8% by the time the deal was set to close, you may no longer be able to afford that home or you may no longer qualify for a loan."
To be sure, demand is fizzling — not crashing. Unlike the 2008 housing market, today's buyers are competing for a limited amount of housing inventory. This imbalance of supply and demand has helped to push the national median home price to an all-time high of more than $420,000.
Although housing affordability is on the decline, today's buyers are still leveraging more than $3.2 trillion in home equity, and those that can afford to compete are becoming more selective. Redfin's data shows that nationwide, 14.9% of homes that went under contract in June fell through due to buyer apprehension. Outside of March and April 2020, June's reading was the highest percentage on record.
"The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals," Marr said in a statement. "Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies. That gives them the flexibility to call the deal off if issues arise during the homebuying process."