Home sellers across the country have become discouraged by the slowing housing market as higher mortgage rates reduce homebuying demand.
“We're finding that sellers aren't selling, buyers have pulled back," First American Deputy Chief Economist Odeta Kushi told Yahoo Finance (video above). "And that's resulting in a housing market that's cooling quite a bit.”
Some buyers are still house hunting in markets where “they can compete with on an offer.” At the same time, the tight supply of homes for sale has caused more would-be buyers to be locked in the rental space.
Yet – renters are seeing little relief. The national median asking rent price was up 11% year-over-year to $2,039, according to a new report from Redfin.
“Even though that is the smallest gain in a year, it still does go to show that you've got some prospective homebuyers that are still impacting the rental market and the renters out there that are still having to take on the burden of some of the higher prices,” Kushi said.
With high home prices colliding with a surge in mortgage rates — with the 30-year fixed rate hitting 6.70% this week — it has left potential buyers in a tough position as affordability hits the worst level in 37 years. Many have simply paused their search.
Pending home sales in the U.S. fell 2% in August — more than expected — marking the third straight month of declines, according to the National Association of Realtors this week. Year over year, pending sales were down by 24.2%.
The supply of homes still remains a concern, too.
“Inventory, particularly at that starter home price range, is still incredibly limited. We're still facing historically low levels of inventory in a housing market that's under built,” Kushi added.
On the other side of the equation, home price growth has slowed for a fourth consecutive month as home values remain elevated.
“That's some welcome news for those potential homebuyers,” Kushi said. “Double-digit annual house price growth is not sustainable. So the market of the last two years is the exception, not the rule. It was an incredibly hot sellers' market.”
Kushi estimates that the market will see “house price deceleration to a more reasonable pace."
"Historically, it's been about 4% to 5%," Kushi said. "Mortgage rates are actually, believe it or not, right in line with the historical average, if not a little bit below.”
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv