Despite mortgage rates reaching 23-year highs, low housing inventory levels are spurring surprisingly strong competition, according to Zillow’s latest market report.
Depleted inventory stocks are gradually recovering, and price appreciation is slowing, but demand has remained resilient, and attractive, appropriately priced listings are moving quickly.
‘With mortgage rates nearing 8 percent in October, the U.S. housing market continues to turn cooler, with inventory rising, and appreciation decelerating,’ Zillow Chief Economist Skylar Olsen said in a release. ‘As interest rates rose, some pent-up sellers appear to have been shaken free of waiting for rates to drop. New listings have nearly escaped the red annually and are trending out of a mortgage rate lock-induced hole. A record number of households in prime homebuying ages are providing buyers, despite the headwinds.’
The key number for any potential buyer or seller is the mortgage rate, which marched skyward through October and finished the month near 8 percent. Rate hikes pushed monthly payments on a typical U.S. home up by more than 4 percent from September to October. At $1,991, monthly payments are up almost 10 percent compared with last October and have nearly doubled in two years, according to Zillow.
The Zillow Home Value Index puts the typical U.S. home value at $347,972, up 2.3 percent from last year. A 0.3 percent monthly decline in values in October is a tad steeper than the 0.1 percent dip from August to September and shows a slightly faster deceleration than pre-pandemic norms.
Home values fell in October in 40 of the top 50 markets, according to Zillow data, with the largest declines in Austin, Texas (-1.5 percent), Minneapolis (-1 percent) and New Orleans (-1 percent). The largest monthly growth was in sunny (and costly) Miami (0.5 percent), San Jose, Calif., (0.4 percent) and San Diego (0.2 percent).
Annual appreciation is strongest in Hartford, Conn. (11.4 percent), Milwaukee (8.5 percent), Providence, R.I., (7 percent) and Boston (6.8 percent) — all metros that avoided extreme early-pandemic growth spurts.
New listings fell nearly 5 percent from September, a smaller drop than would be expected seasonally. But levels were still the lowest to hit the market in any October recorded by Zillow (since 2018).
Despite this, the longstanding deficit in new listings is generally shrinking as some sellers accept that high rates are sticking around. A shortfall of only 1.2 percent from the year prior is the smallest since May 2022, and a deficit of 19 percent compared with pre-pandemic levels is much improved from a trough of -35 percent in April, Zillow added.
There were still a massive 39 percent fewer homes for sale in October than pre-pandemic norms, but that’s an improvement over the 46 percent deficit in May. Total inventory climbed 2.6 percent nationally from September to October — a result of fewer sales and an unexpectedly small September drop-off in new listings.
As sellers come to grips with higher-for-longer mortgage rate expectations, ‘rate lock’ is likely to ease a bit and encourage sales. Seasonally adjusted sales counts, down 31 percent in July from normal levels, are now improved to down 26 percent in October.
Zillow data shows that rising rates and recovering inventory translate to fewer buyers in bidding wars and more sellers cutting list prices. In October, 25.2 percent of sellers cut their list price, up from 23.9 percent in September. The share of sales that closed for higher than list price fell from almost 37 percent in August to 34 percent in September, but that’s still well above pre-pandemic norms of the low- to mid-20s.
But attractive listings are still moving fast. Listings that sold in October typically did so in 16 days – one day longer than in September, but two days faster than last year and two weeks faster than in 2019.