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Home prices plateaued in October

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Financial Stability
Wednesday, November 23, 2022

According to a Zillow report, home prices plateaued in October, as both buyers and sellers are beginning to step away from the market with mortgage rates reaching recent highs. This plateau is likely a signal of the end to the rapid rise in housing costs that were triggered by low interest rates during the pandemic.

“Home prices in October remained in suspended animation as more buyers, but especially sellers, took a wait-and-see approach to market conditions,” said Skylar Olsen, chief economist at Zillow. “Fewer home sales is the hallmark of a housing market lull, but right now potential sellers sensitive to losing their historically low mortgage rates have as much, if not more, of a reason to wait for a robust spring season and hope for mortgage rate relief. With some renewed competition, buyers hoping for aggressive price declines may be disappointed in all but the frothiest pandemic-era markets.”

Rapidly rising mortgage rates coupled with stubbornly high home prices are driving drastic drops in affordability, the Zillow report stated. The share of income spent on monthly mortgage payments rose from 27.7 percent in February to 37.3 percent in October – well above a previous peak of 35 percent in 2006. Housing payments are considered to be a financial burden when they exceed 30 percent of a household’s income. 

The average monthly mortgage payment on the purchase of a typical house in the U.S., even when putting 20 percent down, was $1,910 in October, a 77 percent jump year-over-year and a 107 percent increase from 2019. Monthly payment figures are even higher when including taxes and insurance and when putting less than 20 percent down, as more than half of borrowers do, according to another Zillow report.

Zillow also reported the number of new for-sale listings in October(?) dropped by more than 12 percent from the previous month, bringing the number of new listings to the market 24 percent lower than in 2021 and 21 percent below 2019. The steepest drops in new listings from September came in Seattle (-28.5 percent), Denver (-26 percent) and Washington, D.C. (-24.2 percent). New inventory increased month over month in two major metros — Jacksonville, Fla., (3.1 percent) and Tampa, Fla., (1.3 percent) — while the smallest declines took place in other Florida cities and across relatively affordable metros in the Midwest.

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