Nationally, median home list prices dropped about 11% from their peak over the summer to hit $400,000 in December, according to a recent Realtor.com® report. While prices were still up by about 8.4% year over year in December, this was the first time in a year that they rose by only single digits.
The number of properties for sale nationally shot up more than 50% compared with a year ago. And homes are sitting on the market for longer, giving buyers an opportunity to think about whether this is the right home for them instead of having to put in an offer on the spot.
Mortgage interest rates even dipped from over 7% to the 6% range last month. Rising rates were responsible for cooling off the housing market, as many buyers couldn’t afford the higher monthly payments on a home after rates more than doubled over the course of 2022.
“Prices are moderating. Mortgage rates came down. And there are more homes for sale,” says Realtor.com Chief Economist Danielle Hale. “It’s a continuation of what we’ve been seeing.”
Higher mortgage rates put a stop to the whiplash-inducing price increases and manic bidding wars that defined the COVID-19-era real estate market. Back when rates were in the 2% and 3% range, many buyers could afford the higher home prices because their monthly mortgage payments were low. But when rates spiked, so did mortgage payments—and those higher prices suddenly became unmanageable for many buyers.
That lack of buyers resulted in about 13.6% of all home sellers reducing their listing prices in December, up from 7.1% who made price cuts a year earlier.
However, “Even though prices are coming down in some places, mortgage payments are still higher because mortgage rates have moved up so much over the last year,” says Hale.
Monthly mortgage payments were about 59% larger than they were in December 2021. Buyers are financially tapped out, paying nearly $750 more a month for a median-priced home. (This assumes they put down 20% and doesn’t include taxes, insurance, and homeowners association fees.) That’s significantly higher than rising rents and inflation.