After a few years of flying high, home prices are finally coming back down to earth with a thud. In fact, the prospect of an outright price drop is looming on the horizon, according to a new Realtor.com report.
In March, real estate listing prices came in nationwide at a median of $424,000, down from June’s all-time record high of $449,000.
And while this March’s prices are 6.3% higher than in March 2022, that price growth is tapering off, marking “the lowest rate of growth since June 2020, in the early months of the COVID-19 pandemic,” notes Danielle Hale, Realtor.com® chief economist, in her analysis.
A closer look at spring’s softening home prices
Given that home prices have been running hard and high throughout much of the pandemic, why are they showing signs of losing steam right in the buildup to the busy spring homebuying season?
One clear culprit is mortgage rates, which have more than doubled over the past year—from under 3% to well above 6% for a fixed-rate 30-year loan. Played out in monthly mortgage payments, financing 80% of a typical home today costs an average of $611 (or 39.3%) more, compared to just last year.
This has put a serious crimp in what homebuyers can afford—and, in turn, is forcing sellers to lower their expectations and asking prices. As Hale puts it, home sellers have “gradually adjusted to softer market conditions.”
Many sellers budged, albeit grudgingly, disappointed that they missed the market’s peak.
“While it’s technically more of a seller’s market than a buyer’s market, it doesn’t really feel that way to sellers,” says Brian Davis, who teaches real estate investment courses at SparkRental. “Many sellers just aren’t getting what they want for their homes right now.”
Inside the home-seller dilemma
Sellers facing a relatively lackluster spring season have three choices.
“Some will simply remove their listings from the market,” says Davis. And that’s exactly what many are doing. In March, the number of new listings fell by 20.1%, compared to this same month a year earlier.
As for the sellers who remain in the game, there are still two tough choices to make.
“Some will lower their prices to attract offers,” says Davis.
Indeed, 12.6% of March home sellers made price cuts. That’s more than double the number who slashed their asking prices this same month last year (5.8%).
As for the third group, “sellers who can afford to be patient can simply list their home for the price they want and wait,” says Davis. “But they might end up waiting for a long time.”
And the numbers bear this out. In March, real estate listings lingered an average of 54 days on the market, 18 days longer than last year.
“That stagnation indicates to me that home prices have further to dip, at least in some markets,” Davis says, adding that he thinks the prospects look grim, regardless of what the economy does next.
“The only reason the Federal Reserve would lower interest rates this year is if a recession hits, and they need to stimulate economic growth,” he reasons. “That leaves sellers between the rock of high interest rates and the hard place of a recession—both of which historically dampen home prices.”