Fed Actions Ripple Across Housing Market

• Sale-to-list price ratio dropped below one for the first time since March 2021

• Homebuilders reported offering incentives to improve sales and limit cancellations

• Rents remain significantly elevated compared to prior years and propped up inflation

Rising mortgage rates have calmed the frenzied activity within the housing market. For existing homes, the sale-to-list price ratio dropped below one for the first time since March 2021, indicating homes are selling for less than the list price (-1% MoM/ -2% YoY/ 2% YoY3). For new homes, builders’ confidence fell as buyer traffic dwindled and sales expectations for the next six months deteriorated (-11% MoM/ -35% YoY/ -27% YoY3). More than half reported offering incentives to improve sales and limit cancellations, including mortgage rate buydowns, free amenities, and price reductions.  

Unsurprisingly, the combination of higher rates and prices caused average monthly payments for a mortgage, based on a 5% down payment and 30-year fixed-rate mortgage (FRM), to exceed rent. As housing affordability lowered dramatically, many would-be first-time home buyers were forced into the rental market. Rents plateaued (0% MoM) after months of aggressive climbs, helped by slight relief on the supply side. Vacancies climbed (2% MoM/ 19% YoY) but are far off from pre-pandemic levels (-20% YoY3).

More notably, rents remain significantly elevated compared to prior years (10% YoY / 23% YoY3) and propped up inflation while other sources eased. Accounting for roughly one-third of the Consumer Price Index (CPI), year-over-year changes heavily contribute to inflation. Seasonal trends indicate rents should cool with the temperatures in the fall and winter; however, it may take time to translate into CPI.