Home buyers and sellers are hesitating due to the sky-high mortgage rates. Redfin, a real estate agency, said last month that 17% of the contracts on homes were canceled.
According to the technology-driven real estate company, there were almost 60,000 failed transactions in September, which is the greatest percentage ever (apart from March 2020), the same month the World Health Organization declared the coronavirus pandemic.
The housing market is at “another stop,” according to Chen Zhao, Redfin Economics Research Lead, despite being very different from the early epidemic days.
Mortgage rates are increasing.
Zhao stated that although prices are being supported by inflation and a decline in the number of people putting their homes up for sale, demand is declining as a result of rising mortgage rates.
Many people are being forced to stay put, particularly those who secured “a rock-bottom mortgage rate during the pandemic,” he continued. Deals are failing to close as a result, and buyer completion is declining, according to Redfin.
According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.94% on Thursday. The rate was 3.09% a year ago. According to Redfin, these rates have caused monthly home payments for buyers to increase by more than 50% from a year ago.
According to the residential real estate brokerage, the number of home sales decreased by 25% in September compared to the same month last year. Additionally, new listings fell 22%, which was the worst decline since May 2020.
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Additionally, less than half of the bids made by Redfin agents last month encountered competition, which was again another record low since the pandemic’s beginning.
Zhao predicted that as the Federal Reserve fights inflation, the housing market will deteriorate before improving.
As high inflation persists, the FED barrels toward another 75 basis point rate increase.
He predicted that “the Federal Reserve will probably keep raising interest rates.” That suggests that the key inhibitor of house demand, high mortgage rates, may not start to drop until early to mid-2023.
In November, the Fed convenes. The FedWatch trading tool from the CME Group shows that traders are pricing in a probability of another 75 basis point raise at the end of the Fed’s two-day meeting on November 2. Only 4.9% of people believe the Fed will opt for a half-point increase. One tenth of one percent is known as a basis point.