How High Mortgage Rates Are Shaping Fall’s Housing Market

With mortgage rates hitting highs not seen since 2000, the fall housing market is shaping up to be chillier than usual.

According to the latest® Housing Trends report, 10.1% fewer home sellers listed their homes in September compared with the same month last year. The total number of homes for sale—including both new and old listings lingering on the market—is also down annually by 4.4%.

“The inventory of existing homes continued to be limited this past month,” notes Chief Economist Danielle Hale in her analysis.

Many home sellers are sitting on the sidelines since they’re reluctant to “trade up” their current low-interest home loans for today’s record-high rates.

“Higher mortgage rates impact selling activity through homeowners feeling ‘locked in’ to previously low rates,” Hale explains.

This shrinking inventory becomes all the more stark when you consider the fact that it’s actually 45.4% below pre-pandemic levels seen from 2017 to 2019. In other words, not too long ago, home shoppers enjoyed nearly twice as many listings as they do today.

Why Home Prices Won’t Budge

This lack of listings has had another negative impact on buyers: Prices have remained high.

“Listing prices have been buoyed by scarce inventory,” Hale explains.

Home prices hovered at a national median of $430,000 in September—down from $435,000 in August, but up by 0.4% compared with last year. It’s also the second month in a row that prices increased annually.

Combine these higher prices with high mortgage rates, and Hale estimates that the cost of financing 80% of the typical home in September has tacked on an extra $247 per month compared with just a year earlier.

Can Homebuyers and Sellers See Eye to Eye?

So, where’s the good news in all of this for buyers? The raging seller’s market where home sellers asked for (and got) sky-high prices for their homes might be settling back into reality.

In September, 17.2% of listings reduced their asking price. That’s actually lower than last year’s 19.5%, and below typical price slashing seen in 2017 to 2019.

“This suggests that there isn’t a larger mismatch between buyer and seller expectations than is typically expected, at least for now,” Hale says.

In other words, home sellers are finally realizing they have to adjust their expectations and meet homebuyers somewhere in the middle.

The Pace of Home Sales Remains Steady

Fall tends to see the pace of home sales slow considerably, but this season might turn out to be the exception: In September, homes spent 48 days on the market—just one day longer than last year.

“Time on market is rising more slowly this year than is typical during the fall season, as still-limited supply spurs homebuyers to act quickly,” says Hale.

The upshot is that homebuyers and sellers with hopes of moving before the end of the year could still make that happen.

Another path forward that buyers should consider is new construction. Builders have been working overtime to meet homebuyers’ need for housing, although Hale points out, “construction activity isn’t elevated enough to fully bridge the low inventory gap.”

Another takeaway from the September housing market report is that, despite how bad it seems, homebuyers might actually have a bit more of an edge than they have in the past.

“Today’s market, though still challenging, tilts slightly more in the favor of buyers than in the last few years,” Hale concludes. “The typical seasonal trend coupled with the shifting market will play in the favor of persistent, informed buyers who are ready to purchase. An uptick in homes with reduced prices is a small break for buyers on top of the usual seasonal factors that align to make this first week in October the best week to buy. Yet, the larger context remains challenging. Buyers still struggle with the triple threat of rising listing prices, record-high mortgage rates, and limited inventory, making affordability a continued concern.”