High mortgage rates, declining budgets indicate home-price growth to slow in coming months

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Homebuyer budgets have been relatively flat compared with a year ago driven by high mortgage rates. However, it's a sign that home-price growth has "passed its peak and will slow in the coming months," according to a new report. 

Budgets across the nation were up 0.3% in the three months ending April 30 compared with a year ago, according to an analysis of the average maximum budget set by Redfin.com users. That figure marks the slowest growth rate since June 2020, and also indicates that budgets are essentially flat from this time in 2021. 

Although budgets haven't fallen, "the fact that budget growth has slowed so significantly is one sign among many that home-price growth will continue to slow as the year goes on," Redfin deputy chief economist Taylor Marr said. 

A home sits for sale in Geneva, Illinois, June 23, 2009. (REUTERS/Jeff Haynes  / Reuters Photos)

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"When mortgage rates go up, buyers’ budgets go down," said Marr.

With high rates, more of a buyer's budget will be allocated toward interest payments. Last week, the 30-year fixed mortgage rate jumped to 5.23% from 5.09%, according to Freddie Mac.

A “For Sale” sign stands in front of a home that is in the process of being sold in Monroe, Wash., outside of Seattle. (AP Photo/Elaine Thompson, File / AP Newsroom)

According to Freddie Mac, 30-year fixed mortgage rates averaged 2.96% this time last year. 

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However, "when buyers’ budgets go down, sellers have to meet buyers where they are," Marr said.

In April 2021, budgets hit peak growth at a rate of 12.2%. That was three months before home-sale prices hit their peak growth of 22.6% in July 2021. 

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Similarly, Redfin economists predict the "cooldown in budgets to lead a cooldown in price growth by two to three months, too, as buyers typically search online months before they purchase a home." 

It takes longer for sellers to adjust to the cooling market, but the data shows that they are starting to react. In the last four weeks, 21% of sellers already dropped their asking price, which is up from 10% a year ago, according to Redfin.  

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