The national inventory of homes for sale grew at a record pace for a third consecutive month in July, the latest sign that rising borrowing costs are starting to cool off the housing market.
The number of active listings in the U.S. soared 30.7% from the previous year, according to the latest Monthly Housing Trends report published on Tuesday by Realtor.com. Although potential buyers had more housing options in July, competition remained largely in sellers' favor, with listing prices hovering near all-time highs and homes selling more quickly than before the COVID-19 pandemic.
"The U.S. housing market continues to move toward more evenly balanced supply and demand compared to the 2021 frenzy," said Danielle Hale, the chief economist at Realtor.com. "Our July data shows elevated mortgage rates left many buyers tightening their budgets and sellers responding with price reductions, while home shoppers who kept searching saw more available options."
The interest rate-sensitive housing market has started to cool noticeably in recent months as the Federal Reserve moves to tighten policy at the fastest pace in three decades in order to cool consumer demand and bring scorching-hot inflation under control. Policymakers approved two back-to-back 75 basis point rate hikes in June and July and have indicated that another increase of that magnitude is possible in September, hinging on upcoming economic data.
Following the rate hikes, the average rate on a 30-year fixed mortgage – the most popular among new homeowners – climbed to nearly 6% in June, though they've since moderated. The average rate for a 30-year fixed mortgage hovered around 4.99% for the week ending Aug. 4, according to recent data from mortgage lender Freddie Mac.
That is significantly higher than just one year ago, when rates stood at 2.77%.
Combined with high home prices, the rapid rise in borrowing costs has pushed many entry-level homebuyers out of the market. A new report from Redfin last month showed that the share of sale agreements on existing homes canceled in June was just under 15% of all homes that went under contract – the highest since early 2020 at the height of the COVID-19 pandemic.
Sellers have responded to the slowdown in purchases by cutting prices, although they remain near all-time highs. The nationwide median list price was $449,000 in July, up about 17% from the same period one year ago.
"With inventories increasing, buyers will have more negotiating power," Hale said. "The two years of a market heavily tipped in favor of sellers appears to be in the rearview mirror."