Mortgage rates rose from 5% at the beginning of August to 6% by the end of the month, causing yet another sharp drop in homebuying activity, and as more buyers pull back from home purchases, would-be sellers are becoming more reluctant to list their homes. As a result, seasonally-adjusted new for-sale listings fell 8% from July to August, reaching their lowest level since May 2020, according to Redfin.
Though buyers are gaining more bargaining power in a rebalancing market, the majority of homeowners are holding onto their homes not just due to a lack of buyer demand, but also because many locked in ultra low mortgage rates last year and are still picking up significant equity. A housing reset may cause prices to fall in some overheated markets, but prices are still historically high and sellers are still in the driver’s seat even as they retreat from the for-sale market.
While we may be in a housing recession, the slowdown in sales is not a sign of a bubble bursting, Fairweather went on to explain:
“The bottom line is that homeowners don’t need to sell in this environment. They locked in rock-bottom mortgage rates last year and are sitting on piles of equity. The jobs market remains very strong, so there’s little risk that mortgage delinquencies or foreclosures will rise significantly. It would take a severe—not soft—recession to send homeowners into distress. We will have to wait and see if the broader economy steers toward normalcy or recession in the upcoming months.”
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