The housing market is showing signs of life.
Listing activity and the number of homes under contract increased nationally over the past month. This is the latest sign that some of the paralysis caused by the rapid rise in mortgage rates in recent years is easing.
But there is a limit to how much the housing market can recover if homeowners are left with ultra-low mortgage rates rather than putting their homes on the market and accepting current rates of 6% or more, a phenomenon known stands as the rate lock-in effect.
“Overall, new listings and sales in September moved closer to pre-pandemic norms,” said Kara Ng, housing economist at Zillow. “There is still a long way to go when it comes to normalizing supply.”
In September, the biggest gains were made in expensive countries such as Seattle, Los Angeles and San Jose, California.
These regions have a higher share of buyers who finance their purchases and large mortgages that provide homebuyers with greater monthly cost savings when mortgage rates fall. In some markets, listing prices have even fallen slightly.
Nationally, there were approximately 950,000 homes on the market in September. That number has been steadily increasing this year, although it is still about 22% below 2019 levels.
According to Realtor.com, new listings rose 25% or more last month compared to a year earlier in the Seattle, Silicon Valley, Denver and Washington, DC areas. The average listing prices across these markets are $599,000.
In expensive parts of the country, any savings on mortgage interest can help get buyers interested, says Tim Nguyen, a real estate agent in Santa Clara, California, where the average home sells for more than $1.4 million. The average interest rate fell by more than a percentage point this year, from 7.22% in May to almost 6% last month.
“That always drives the market,” Nguyen said. “If you look at a $1 million home, for every percentage point decrease, it’s just over $500 in savings per month. That is important if you need money to go shopping.”
Read more: Is this a good time to buy a house?
According to Redfin, pending sales, a measure of the number of homes under contract, rose by double digits in Portland, Oregon, Seattle and several California cities in recent weeks. But the signs of improvement come from a very low base: a year ago the number of home purchases was moderate because mortgage interest rates were almost 8% and the number of homes under contract has been at a record level for years.
Nationally, Redfin calculated that pending sales rose 3.2% year over year for the four weeks ended October 13. This was the biggest jump in more than three years.
Troy Khuu, a San Jose agent, said the most sought-after homes in his market — homes that have been updated, located in strong school districts and close to technology companies — are still selling above their asking price, sometimes within a few days. . But buyers aren’t rushing to buy homes that don’t meet all their specifications, he said.
“It’s no longer the buying frenzy we saw a few years ago,” Khuu said. “It depends on the listing. It depends on the price.”
Buying houses is a highly seasonal activity. Zillow viewed September as a sort of “last call” for the market before sales slow down for the winter. And in recent weeks, mortgage rates have started to rise again and mortgage applications for home purchases have decreased.
“We’re making steps in the right direction, but they’re pretty small steps,” said Danielle Hale, chief economist at Realtor.com. “I think it will be a while before we stop talking about the lock-in effect on mortgage rates.”
Read more: Should you fix a mortgage rate – and if so, when?
Claire Boston is a senior reporter for Yahoo Finance covering housing, mortgages and home insurance.
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