Mortgage rate expectations keep homebuyers on sidelines as market stalls

Most prospective homebuyers anticipate mortgage rates will continue falling, prompting many to delay purchases, according to a new CNBC Housing Market Survey. The average 30-year fixed mortgage rate stands at 6.17 per cent, according to Mortgage News Daily, representing the lowest level in approximately one year.

Despite this decline, nearly three-quarters of surveyed real estate agents report their buyers expect rates to drop further. "My biggest challenge is when buyers hear predictions of future rate decreases, which in turn have buyers sit on the sidelines and wait to see how low they will go instead of getting out there and buying now," said Maureen States, a real estate agent in Pittsburgh.

The CNBC Housing Market Survey collected responses from 54 randomly selected real estate agents nationwide between Sept. 22 and Sept. 30. Most agents characterize current market conditions as favoring buyers over sellers.


Also read: Mortgage rates hit one-year low: 30-Year mortgage rate falls to 6.19% - should you buy a home now?

However, affordability remains the primary reason buyers are delaying purchases.

Mortgage rates top the list of buyer concerns, followed by economic uncertainty and overall affordability. This concern persists even as 44 per cent of agents reported price decreases in their areas, while only 20 per cent indicated prices are rising.

"Sellers are still pricing for a seller's market, and buyers are willing to wait for prices and rates to drop. It is a bit of a standoff, and folks are only moving if they absolutely must," said Katie Kosnar, an agent in North Carolina serving Raleigh and Durham. "Right-sizing used to be a driving factor, but most sellers I've encountered will be paying a higher mortgage for a smaller house and just aren't willing to make that move."

Buyers turn to alternative financing strategies

Homebuyers are employing various strategies to manage affordability challenges. Interest rate buydowns and adjustable-rate mortgages, which offer lower initial rates, have become more common.

Approximately 40 per cent of survey respondents indicated their buyers are borrowing from family or friends to afford home purchases. Buyers are also compromising on home size, location, or features to reduce prices.

Housing market outlook and regional variations

The majority of surveyed agents expect home sales to either improve slightly or remain stable in the next quarter. About 17 per cent anticipate sales declines.

Market conditions vary significantly by location. Markets that experienced the largest price increases during the pandemic are seeing the steepest declines, while more affordable markets are posting stronger gains.

Home prices continued rising annually through August according to national indexes, though price gains are shrinking. The Northeast and Midwest show the strongest price gains, while the South and West are weakening.

Sellers reduce prices as homes linger on market

Sellers' primary concern is the time required to find a buyer. Some worry about underpricing their homes, and sellers are also monitoring mortgage rates closely.

Also read: Mortgage rates set to rise? 30-year Refi hits 6.27%, as Former Treasury Secretary warns of ‘unsustainable’

About 89 per cent of surveyed agents reported at least one seller reducing their asking price. Nearly one-third said more than half their sellers have dropped prices.

Roughly 40 per cent of agents had at least one seller delist their home, hoping for better pricing later.

Home inventory increases but remains tight

The supply of homes for sale in September exceeded year-ago levels, as did new listings following a slow August, according to Zillow.

New listings declined 2 per cent from August to September, a smaller decrease than the average 9 per cent monthly drop seen over the past seven years, also according to Zillow.

While inventory has gained over the past year, supply remains historically tight, particularly for affordable properties.

"For buyers, low inventory and mortgage rates, from an affordability standpoint, are still a challenge," said Holly David, an agent in Richmond, Virginia. "For sellers who are locked in to a 3 per cent [mortgage] rate, even though they may have a housing want or need, they may not be willing or able to make a move."