Real Estate Market Update: US Mortgage Rates Are Falling from 23-Year High

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Mortgage rates falling from a 23-year high have brought some early “holiday cheer for home shoppers and sellers,” according to a recent US market update.

The latest Zillow (NASDAQ: Z and ZG) market report shows monthly costs “for a new mortgage are falling, inventory is trending back toward normal, and price cuts are uncharacteristically common.”

Zillow Chief Economist Skylar Olsen said:

“Despite high-cost headwinds, buyers have a few things to be thankful for in today’s market. 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%, 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.”

Mortgage costs tick down, along with rates, home values

Buyers facing extreme cost challenges “received a bit of relief as monthly mortgage costs on a typical home purchase fell 1.5% from October to November.”

That’s down from a peak in October, “when costs were up 9% annually and almost 120% above pre-pandemic levels. Affordability improved, too, with mortgage payments2, as a share of household income, falling from October’s record high of 40.4% to 38.6% in November.”

The monthly decline in costs was primarily “driven by falling mortgage rates. But rates still higher than 7% also helped push down home values.”

The Zillow Home Value Index “declined 0.4% 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% from last year and now stands at $347,415.”

Annual growth is strongest “in Hartford (11.3%), Milwaukee (8.5%) and San Diego (7.6%) — places where demand has overwhelmed supply.”

The largest annual drops “are in New Orleans (-8.9%), Austin (-8.2%) and San Antonio (-3%), with those last two metros serving as examples of how a surge in new construction is helping rebalance markets.”

Inventory continues to climb out of pandemic hole

Home shoppers have dealt with a low flow of new listings “for nearly two years, but some sellers are finally returning to the market. New listings bottomed out at almost 35% below pre-pandemic norms in April, but positive momentum over the past few months has cut the shortfall to just 14%. Still, new listings fell 20.5% 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 to before the pandemic.”

Zillow surveys show 70% of sellers “are also buying; relative affordability in these areas offers inbound movers an easier time.”

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