Home prices and competition reduced as volatility persists

Interest rate volatility and its increasing toll on affordability are reducing competition among buyers and contributing to a second consecutive monthly decline in home prices, Zillow said.

Home prices dropped 0.3% in August from July, to $356,054, according to the raw Zillow Home Value Index. That is the largest month-to-month drop since 2011. It followed a 0.1% decrease in July.

"Substantial day-to-day and week-to-week rate movements mean that many potential buyers are able to qualify for a loan one week, but not the next, or vice versa," said Skylar Olsen, chief economist at Zillow, in a press release. "Even buyers able to afford a house at current rates could feel frozen, waiting for mortgage rates to fall dramatically again, like they did from the end of June to mid-July, when rates dropped 50 basis points in just two weeks."

Typical home values are still up 14.1% compared with August 2021 and 43.8% since August 2019. High annual rates of growth could be masking deeper problems in the market, Black Knight noted earlier this month.

Prices were down 2.4% on a month-to-month basis but up 7% year-over-year, Remax previously reported. Those lower prices, however, led to a 5.3% increase in sales in August versus July.

The typical time for a listing to go to pending sale status was 16 days during August, up 3 days from July. That's a steeper increase than the market usually sees this time of year, Zillow's report said.

While inventory increased 1% from July — the smallest bump since February — it was more a result of homes taking longer to sell, Zillow said. Potential sellers are not acting because interest rates are in the 6% range.

An 8% seasonally adjusted decline in new listings of homes for sale for August from July was noted in a separate report from Redfin. That is the lowest level since May 2020, when the housing market came to a halt in the early days of the pandemic.

When rates were under 3%, "the market was like a game of musical chairs with buyers vying for too few homes," said Redfin Chief Economist Daryl Fairweather in a press release. "Now the market is more like a middle school dance where a small number of buyers and sellers are pairing up during a slow song."

The median days on market in August according to Redfin's data was 26, a gain of 5 from July and 9 from one year ago.

Just two months of inventory was on the market for August, down slightly from July.

The median sales price was down 1.3% from July to $406,900; this was 7.1% higher than for August 2021.

This decline in sales is not a sign of a bubble bursting, primarily because homeowners don't need to sell as they are paying low mortgage rates and still have large amounts of equity in their properties, Fairweather argued.

"The jobs market remains very strong, so there's little risk that mortgage delinquencies or foreclosures will rise significantly," Fairweather said. "It would take a severe — not soft — recession to send homeowners into distress."

Meanwhile, lower cost housing markets remain hot, Zillow said. Home values rose in 12 of the 50 largest markets on a month-to-month basis, led by Birmingham, Alabama, up 0.9%; Indianapolis, up 0.5%; Cincinnati, up 0.4%; and Louisville, Kentucky, up 0.2%, all areas where the typical home value is under $300,000.

Miami, which had the fifth largest increase, also had the highest rent growth over the past three years.