Mortgage rates falling from a 23-year high have brought some early holiday cheer for home shoppers and sellers, according to the latest Zillow market report, which shows monthly costs for a new mortgage falling, inventory trending back toward normal, and uncharacteristically common price cuts.
“Despite high-cost headwinds, buyers have a few things to be thankful for in today’s market,” Zillow Chief Economist Skylar Olsen said in a release. “Home prices are cooling down faster than normal as new listings from existing owners and total inventory slowly recover. Mortgage rates are still above 7 percent, but price cuts are surprisingly common, and mortgage costs eased a bit. These factors favor buyers who are reluctant to pause their home search in the off-season.”
Buyers facing extreme cost challenges received a bit of relief as monthly mortgage costs on a typical home purchase fell 1.5 percent from October to November. That’s down from a peak in October, when costs were up 9 percent annually and almost 120 percent above pre-pandemic levels. Affordability improved, too, with mortgage payments, as a share of household income, falling from October’s record high of 40.4 percent to 38.6 percent in November, Zillow added.
The monthly decline in costs was primarily driven by falling mortgage rates. But rates still higher than 7 percent also helped push down home values. The Zillow Home Value Index declined 0.4 percent from October to November, falling slightly faster than what was previously considered “normal” for this time of year. Still, the typical national home value is up 2.8 percent from last year and now stands at $347,415.
Zillow said annual growth is strongest in Hartford, Conn., (11.3 percent), Milwaukee (8.5 percent) and San Diego (7.6 percent) — places where demand has overwhelmed supply. The largest annual drops are in New Orleans (-8.9 percent), Austin, Texas, (-8.2 percent) and San Antonio, Texas, (-3 percent), with those last two metros serving as examples of how a surge in new construction is helping rebalance markets.
Zillow data also shows that while home shoppers have dealt with a low flow of new listings for nearly two years, some sellers are finally returning to the market. New listings bottomed out at almost 35 percent below pre-pandemic norms in April, but positive momentum over the past few months has cut the shortfall to just 14 percent. Still, new listings fell 20.5 percent month-over-month — a much smaller drop than normal for November.
Mortgage rates slightly down from an October peak, or an expectation for relatively high rates for longer, may be shaking some current owners free from “rate lock.” Metros in the Midwest, the Great Lakes region and the South have the smallest declines in new listings compared with before the pandemic. Zillow surveys show 70 percent of sellers are also buying; relative affordability in these areas offers inbound movers an easier time.
Sellers are responding to affordability challenges by cutting list prices. The share of listings that saw a price cut in November is unseasonably high at 22.6 percent – even more so than October’s rate of 25 percent. Agents are updating pricing strategies as persistently high mortgage rates weigh on buyers. Moving into winter, there’s a good chance buyers will have more wiggle room in negotiations.
Price cuts are most common in Tampa, Fla., (33 percent), Indianapolis (31.7 percent), Salt Lake City (30.8 percent) and Nashville, Tenn., (30.5 percent).