The housing market IS cooling: Analysts predict existing US home sales in September will drop

US home sales will drop for the eighth straight month in September as mortgage rates surge and house prices stay stubbornly high, experts have warned, making it increasingly difficult for Americans to buy a home.

The decline depicts a real estate market that is becoming increasingly inaccessible for first-time home buyers, who have been deterred from entering the market by the rapidly rising home prices.

The national average home price for all housing types reached record $389,500 last month, up 7.7 percent from a year ago, and slightly down from  a $428,700 average in July, the most recent real estate data shows. 

The average rate on a 30-year fixed-rate mortgage now sits at 6.92 percent – the highest it has been since 2002.

Nationwide, home prices soared have soared 43 percent over the past two years, according to the S&P CoreLogic Case-Shiller Index. 

Consequently, house sales have slumped – with rising rates and asking prices keeping prospective buyers from pulling the trigger.

Mortgages rates, meanwhile, are set to surpass 7 percent this week – more than double what it was a year ago – analysts warn, as consistent Fed rate hikes continue to put pressure on the real estate market.

Those rocketing rates have also helped cool some of the nation’s hottest housing markets, as cash-strapped buyers increasingly shy away from home purchases.

‘A year ago, people were buying homes sight unseen, multiple offers,’ Los Angeles real estate agent Craig Strong told CBS News this weekend. ‘It’s a good time to put an offer on a house at a lower number.’

Strong said that he anticipates sales will continue to fall in the coming months as buyers and sellers adapt to the shifting market, especially during fall’s traditional home sales slowdown. 

Housing affordability, meanwhile, is down 29 percent from a year ago, according to the National Association of Realtors. 

‘It’s just a changing market,’ Strong said. ‘2008, that was a crash landing. But I feel it’s going to be a softer landing. It’s going to be over a period of time as people get adjusted to the new rates and the new purchase price.’ 

The fastest cooling markets are Seattle, Las Vegas, San Jose, San Diego, Sacramento and Denver, according to S&P. Holding strong are Chicago, Albany and Milwaukee.

In Seattle – where the average price of a home is roughly $775,000 – approximately 34 percent fewer homes were sold within two weeks of being posted on the market than the year before.

This is up from a 23 percent year-over-year increase seen last February, according to the analysis – showing that the number of quick sales is rapidly decreasing, following a year of record gains.

Contributing to the rapid cooldown is the country’s surging mortgage rates, which now sits at 6.92 percent – the highest it has been in two decades. 

Now, data shows that the cities that experienced those spikes have since seen prices plummet.

‘We have seen mortgage rates double in just this year. And in some markets, we are starting to see prices go down from those sky-high levels,’ CBS News’ Jill Schlesinger said of the recent phenomenon, which has caused the city’s supply of for-sale homes to balloon by more than 100 percent since last year. 

This has left buyers with more purchase options to choose from, spurring homes to subsequently take longer to sell – with prices also now rising much slower than they were earlier in the year. 

The typical monthly mortgage payment rose to more than $1,850 in August, the National Association of Realtors said – up from $1,297 in January and $1,220 from a year ago. That’s nearly a 50 percent increase in a span of less than six months.

The number is well above the average monthly mortgage payment prior to the pandemic, which ranged from $1,400 to just under $1,500.

The drastic increases suggest a decline in homeownership is on the horizon, as prospective buyers entering the market inevitably shy away from deals that would see them have to shell out those amounts – unless, of course, sellers slash those asking prices, experts like Strong say.

The looming housing crisis comes after a period of relative affordability seen in 2020 and last year during the pandemic, due to record-low mortgage rates – despite prices also raising during that period to satisfy an also increasing demand.

This year, though, shortly before the fed decided to raise interest rates to combat record inflation, banks drastically raised mortgage rates last month, in their own effort to cover prospective losses to be incurred by the US’ diminishing dollar.

In its biggest one-week jump since 1987, the 30-year fixed-rate mortgage, the most popular home loan package, was raised to 5.78 percent in June, up from 5.23 percent seen at the end of May.

It has since reached an even more pronounced 5.83 percent as of the week ending July 1, after coming close to 6 percent.

A year ago, the affordability rate was roughly half what it is today, at 2.9 percent.

The sudden rise has since seen the country’s housing market cool significantly, with sales of previously owned homes sliding in August for the seventh straight month, as prospective buyers deal with increased costs.

The drop in demand is expected to see home-price growth reach a peak by the end of the year – before inevitably plummeting, economists warn.

‘We’re in a housing-affordability crisis right now,’ Robert Dietz, chief economist at the National Association of Home Builders, told The Wall Street Journal of the phenomenon, citing how real-estate firms have cut asking prices in recent weeks to compensate for the rapidly shifting real estate market.

Homes in cities that have seen marked price growth in recent years, including Boise, Idaho; Phoenix, Arizona; and Austin, Texas, have seen average home prices slashed in recent weeks, according to Redfin.

Meanwhile, other economists say home prices are likely to continue to rise in the coming weeks, as the inventory of homes for sale generally remains low.

‘These are all places where homebuyers are feeling the sting of rising home prices, higher mortgage rates and inflation very sharply,’ said Redfin Chief Economist Daryl Fairweather of the brokerage firm’s recent study. 

‘They’re slowing down partly because so many people have been priced out and partly because last year’s record-low rates made them unsustainably hot. 

‘The good news is that the slowdown is dampening competition and giving those who can still afford to buy more negotiating power,’ he added.

Prices have fallen amid a recent spike in mortgage rates. A 30-year fixed-rate mortgage currently charges 5.66 percent interest — up nearly three points on the same time last year, according to the federal government’s loan corporation, Freddie Mac.

Earlier this month, the Federal Reserve hiked interest rates for a fourth time this by another 0.75 percentage point, in a bid to quell inflation.

Economists at Goldman Sachs recently warned that home price growth was expected to stall completely across the U.S. next year thanks to waning demand and too many properties up for grabs.

Mark Zandi, chief economist for Moody’s Analytics, last month warned that house prices could fall by as much as 20 percent next year if there’s a recession, and that prices in parts of the country were overvalued by as much as 72 percent.

The emerging housing crisis comes after a period of relative affordability seen in 2020 and last year during the pandemic, due to record-low mortgage rates – despite prices also raising during that period to satisfy an also increasing demand.

This year, though, shortly before the fed frist decided to raise interest rates to combat record inflation, banks drastically raised mortgage rates in their own effort to cover prospective losses that may be incurred in a forecasted recission.

In its biggest one-week jump since 1987, the 30-year fixed-rate mortgage, the most popular home loan package, was raised to 5.78 percent in June, up from 5.23 percent seen at the end of May.

It has since reached an even more pronounced 6 percent as of September.

A year ago, the affordability rate was less than half of what it is today, at 2.9 percent.

The sudden rise has since seen the country’s housing market cool significantly, with sales of previously owned homes sliding in May for the fourth straight month, as prospective buyers deal with increased costs.

The drop in demand is expected to see home-price growth reach a peak by the end of the year – before inevitably plummeting, economists warn.

‘We’re in a housing-affordability crisis right now,’ Robert Dietz, chief economist at the National Association of Home Builders, told The Wall Street Journal of the phenomenon, citing how real-estate firms have cut asking prices in recent weeks to compensate for the rapidly shifting real estate market.

Homes in cities that have seen marked price growth in recent years, including Boise, Idaho; Phoenix; and Austin have seen average home prices slashed in recent weeks, according to Redfin.

With high prices and rising rates squeezing young homebuyers -many being millennials aging into their prime homebuying years – the number of sales of existing homes dropped 8.6 percent from last year, to a seasonally adjusted annual rate of 5.41 million.  

Meanwhile, another study published by Redfin last month found that a high share of home sellers dropped their asking price in July, particularly in former pandemic boomtowns.

Boise, Idaho, which was a top destination for West Coast remote workers during the pandemic, saw 70 percent of listings slashed in July, up from just a third a year ago.

In Denver, 58 percent of home listings were reduced last month, while 56 percent of listings in Salt Lake City were dropped from the initial asking price.

‘Individual home sellers and builders were both quick to drop their prices early this summer, mostly because they had unrealistic expectations of both price and timelines,’ said Boise Redfin agent Shauna Pendleton.

‘They priced too high because their neighbor’s home sold for an exorbitant price a few months ago, and expected to receive multiple offers the first weekend because they heard stories about that happening,’ she added. 

‘My advice to sellers is to price their home correctly from the start, accept that the market has slowed and understand that it may take longer than 30 days to sell. If someone is selling a nice home in a desirable neighborhood, they shouldn’t need to drop their price.’