Some homebuyers are returning to the market as mortgage rates decline from the four-month high they reached last week, according to a new report from Redfin, the technology-powered real estate brokerage.
Daily average mortgage rates dropped from 7% to about 6.5% over the weekend in the wake of Silicon Valley Bank’s collapse. U.S. home prices also fell, dropping 1.8% year over year during the four weeks ending March 12, the biggest decline in over a decade.
Sidelined buyers reacted quickly: Bay Equity, Redfin’s mortgage-lending company, locked a rate on more loans on March 10 than any other day so far this year. Overall, U.S. mortgage-purchase applications increased by 7% from the week before during the week ending March 10.
The median U.S. home price fell 1.2% in February, marking the first year-over-year decline since 2012. Sellers have been forced to lower their expectations because high mortgage rates have put homebuyer demand on ice.
“Buyers are struggling because higher interest rates have increased the cost of homeownership, and sellers are struggling because they’re still adjusting to the fact that their home won’t sell for what their neighbors did a year ago,” said Andrew Vallejo, a Redfin real estate agent in Austin, Texas, which has seen one of the largest home-price declines in the country. “The drop in prices is bringing more house hunters off the sidelines, but they’re in no rush because rates are high and they have the upper hand.”
Just under half (44.9%) of homes that went under contract in February did so within two weeks, down from 60.2% one year earlier, as house hunters sussed out whether to buy now or wait. A buyer Vallejo recently worked with was about to close on a $395,000 home, which seemed like a good deal because the same floorplan down the block sold for $460,000 last summer, but is now reconsidering because a nearly identical home just hit the market for $370,000.
While the unrest in the banking system may lower rates and bring back some buyers in most of the country, it’s likely to further spook buyers in certain areas. Housing markets in the Bay Area and New York, home to the three regional banks that have tumbled over the last week — along with many tech workers who have either been laid off or are worried about being laid off — are already feeling the pain.
“Some buyers are canceling their contracts or bowing out of their home search because they work in tech and are worried about losing their jobs,” said Bay Area Redfin manager Shelley Rocha. “The surge in tech layoffs was already causing jitters, and now the bank failures are adding to buyers’ nerves.”
Home purchases continued to level off in February following a sharp plunge in the second half of last year. Pending home sales have now hovered around the same level since November. They rose 0.3% in February from the month before on a seasonally-adjusted basis, and were down 26% from a year earlier—an improvement from the 35.5% record annual drop in the fall.
Closed home sales showed signs of improvement as well, rising 1.8% from January—the largest month-over-month increase in over a year on a seasonally-adjusted basis. Closed sales fell 22.5% year over year, an improvement from the 35.1% record annual decline at the start of 2023. Sales that closed in February primarily went under contract in December and January, so the improvement is likely a reflection of the decline in mortgage rates during those months that temporarily boosted demand.
Homebuyer competition also leveled off in February. Just under half of home offers (45.2%) written by Redfin agents faced bidding wars. The bidding-war rate has now hovered around the same level for four months following nine months of declines. Still, it’s much lower than it was in February 2022, when 66.4% of offers encountered competition.
