Homebuyers are finally starting to see some moderation in prices as the market corrects.
The cost of a new mortgage fell 4.8% in November as mortgage rates plunged, according to Zillow’s latest Market Report. This is only the second time mortgage costs have declined in the past 19 months.
Falling home values and shrinking mortgage rates forced prices to cool. Rates dropped 57 basis points in November alone.
The typical U.S. home saw its value shrink 0.2% from October to November, and is down 0.5% from a peak in June.
Renters also reaped the benefits of declining values, with rents seeing their largest single-month drop in the seven-year history of Zillow’s data.
Affordability remains a challenge. Monthly mortgage costs are still $720 more expensive than the same time last year, a 66.1% increase YOY.
But the combination of forces pushing prices down offers hope that affordability may stabilize in 2023.
“The two big questions are whether mortgage rates will continue to decline and whether that will be enough to bring buyers back in time for the spring selling season. In the meantime, those on the prowl for a house will benefit from motivated sellers, unusual bargains, and a welcome lack of competition,” said Zillow Senior Economist Jeff Tucker.
The Mortgage Bankers Association predicts that rates will retreat in 2023 and ultimately level out at 5.4% by the end of the year. But MBA chief economist and senior vice president for research and industry technology, Mike Fratantoni, cautioned that volatility will continue.
“Next year will be particularly challenging for the US and global economies,” he said.
Individual markets have varied significantly in their home value changes, but expensive markets have seen the largest declines from their peaks.
Prices have fallen by 10.6% in San Jose and 9.5% in San Francisco, while other Western markets like Austin (-10.4%), Phoenix (-8.1%), and Las Vegas (-8%) also saw serious dips.
While these numbers are heartening for potential buyers, the stock shortage persists and will likely keep prices elevated moving into the new year. The number of listings that went pending in November fell by 16.5% month-over-month, and new listings are down 25.4% YOY.