As affordability declines, the hot housing market is starting to see signs of cooling. In April, 15% of home sellers dropped their asking prices, a 5.9% YOY increase, Redfin reported.
The increase is a six-month-high and the largest annual gain on Redfin’s record, which dates back to 2015.
But buyers still outnumber sellers, so the market remains competitive and homes priced affordably continue to sell for more than asking. New listings of homes for sale were down 6% YOY and have dwindled since mid-March.
The median asking price of newly listed homes rose 16% YOY to $408,458, a new all-time high. So even as more sellers are dropping prices to entice buyers, their returns are still significant.
“Homebuyers continue to be squeezed in nearly every way possible, which is causing some to take a step back from the market,” said Redfin Chief Economist Daryl Fairweather.
“Unfortunately for buyers hoping to find a deal as competition cools, sellers are pulling back even faster, which is keeping the market deep in seller’s territory. So even though price drops are becoming more common, most homes are still selling above asking price and in record time.”
The typical monthly mortgage payment rose 42% YOY, reaching a new high. The median home sale price was up 17% YOY, the biggest hike since August.
As a result, some potential buyers are being priced out of the market. Redfin said that searches for “homes for sale” on Google are down 7% YOY, while its Homebuyer Demand Index is down 10% just in the last four weeks.
Analysts say a cooling housing market won’t lead to a crash. Instead, prices will correct, coming down from highs that Moody’s Analytics labels “overvalued”. Moody’s looked at 392 metros and found that 96% are overvalued, with 149 being overvalued by at least 25%.
Among those, Mark Zandi, chief economist at Moody’s Analytics, expects large price drops.
“In terms of house prices, I expect it [growth] to go flat…there will be markets where we will see a price decline of around 5% to 10%,” he said.