High mortgage rates slow real estate sales but offer opportunities this fall

High mortgage rates put the real estate market in a slump in the final month of summer, but they could also provide a runway for buyers to jump into a less competitive market in the fall.

Homes spent 53 days on the market in August, the longest time for the month in five years, according to Realtor.com® data. There were also 19.3% of listings with price cuts, the highest level for the month in five years.

“August marks a notoriously sluggish time for sales here in New York City, but this was a particularly slow summer,” says real estate agent Alison McQueen, a licensed associate broker at The Corcoran Group.

It’s not all bad news, though, and it means that buyers can now take their time shopping for a new home in the fall.

“This fall could be busier for the housing market than this season typically is, but it’s still likely to be a less competitive time, which makes it ideal for flexible buyers,” says Realtor.com Chief Economist Danielle Hale.

And there might be a silver lining for sellers as well.

The record slowdown in August can be firmly blamed on high mortgage rates.

“The housing market slowed considerably as both buyers and sellers patiently wait for a lower mortgage rate environment,” says Realtor.com® senior economist Ralph McLaughlin in his analysis.

The Federal Reserve’s mid-September policy meeting is quickly approaching, and rates are expected to drop. While the Fed doesn’t set mortgage rates, the two numbers often move in the same direction.

Realtor.com economists predict rates will fall to 6.3% by the end of 2024. And once rates drop, expect the market to kick up a notch.

This fall, housing stock is likely to increase partly because homes will take longer to sell. A notable development from August was that new listings fell by 0.9% compared with last August, marking the first negative reading in nearly a year. However, as rates tumble, more homeowners might finally be willing to part with their existing low rates and put their homes on the market.

“There’s a stalemate in the marketplace due to the higher differential of 2024 interest rates versus 2021 interest rates,” says Jeff Lichtenstein, broker and owner of Echo Fine Properties in Palm Beach Gardens, FL. “That 4% spread has homeowners holding on to their current rate like Gollum held onto his precious ring.”

A recent Realtor.com analysis found that 86% of homeowners have mortgage rates below 6%, so many feel "locked-in" until rates dip. This fall's number of homes for sale is likely to climb partly because it will take homes longer to sell," explains Hale.

In August, homes lingered on listing pages nearly a week longer than typical last year. In fall “time on market typically increases so buyers are likely to have even more time to make decisions,” says Hale. Even though falling rates could bring more home shoppers back into play houses won’t necessarily start selling rapidly immediately; some buyers may hold off until after Inauguration Day 2025 due possibly seeking stability before making major financial commitments according Aaron Buchbinder Compass agent Boca Raton FL

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