The median U.S. home price fell 1.2 percent in February, marking the first year-over-year decline since 2012, according to a new report from Redfin.
Sellers have been forced to lower their expectations because high mortgage rates have put homebuyer demand on ice.
“Buyers are struggling because higher interest rates have increased the cost of homeownership, and sellers are struggling because they’re still adjusting to the fact that their home won’t sell for what their neighbor’s did a year ago,” Andrew Vallejo, a Redfin real estate agent in Austin, Texas, said in a release. “The drop in prices is bringing more house hunters off the sidelines, but they’re in no rush because rates are high and they have the upper hand.”
Just under half (44.9 percent) of homes that went under contract in February did so within two weeks, down from 60.2 percent one year earlier, as house hunters considered whether to buy now or wait. A buyer Vallejo recently worked with was about to close on a $395,000 home, which seemed like a good deal because the same floorplan down the block sold for $460,000 last summer, but is now reconsidering because a nearly identical home just hit the market for $370,000, according to Redfin.
It’s worth noting the housing market shifted in March following the collapse of Silicon Valley Bank.
Ongoing turmoil in the banking sector lowered the likelihood of the Federal Reserve hiking interest rates much more this year. That caused mortgage rates to drop, which brought more homebuyers back to the market. The average 30-year-fixed mortgage rate was 6.54 percent as of March 16, down from nearly 7 percent at the end of February.
The decline comes after rates jumped by almost a whole percentage point during the month of February.
Home purchases continued to level off in February following a sharp plunge in the second half of last year, according to Redfin data.
Pending home sales have now hovered around the same level since November. They rose 0.3 percent in February from the month before on a seasonally-adjusted basis and were down 26 percent from a year earlier—an improvement from the 35.5 percent record annual drop in the fall.
Closed home sales showed signs of improvement as well, rising 1.8 percent from January—the largest month-over-month increase in over a year on a seasonally-adjusted basis. Closed sales fell 22.5 percent year-over-year, an improvement from the 35.1 percent record annual decline at the start of 2023. Sales that closed in February primarily went under contract in December and January, so the improvement is likely a reflection of the decline in mortgage rates during those months that temporarily boosted demand.
Homebuyer competition also leveled off in February. Just under half of home offers (45.2 percent) written by Redfin agents faced bidding wars. The bidding-war rate has now hovered around the same level for four months following nine months of declines. Still, it’s much lower than it was in February 2022, when 66.4 percent of offers encountered competition.
New listings in February were at the lowest level on record with Redfin aside from the start of the pandemic. They fell 23.3 percent year-over-year on a seasonally-adjusted basis and were down 3.5 percent from the prior month.
Homeowners have been hesitant to put their properties up for sale because many of them have locked in mortgage rates substantially below today’s level, according to Redfin. They’re also on the fence because they see sellers in their neighborhood slashing their listing prices. One in seven (14.2 percent) homes for sale had a price cut in February. While that’s down from a peak of 22 percent in the fall, it’s still more than double the 5.7 percent rate of a year earlier, Redfin data shows.