Mortgage interest rates have been slowly retreating from their 23-year high of 7.79% in October 2023. While this decline hasn’t significantly reduced rising house prices, it has brought the average home price to $416,700 as of August 2024, even as sales volume declined by 4.2% year-over-year. This combination of higher prices and interest rates is cooling some previously hot markets.

Listing prices in areas like Austin, TX, and San Francisco, CA, are showing declines, with Denver-Aurora-Lakewood, CO, down 7% to a median listing price of $627,450. Price cuts are also rising nationwide, reaching a two-year high at 18.9%, including 32.4% of listings in Denver seeing reductions.

Low inventories continue to support high home prices, but there are signs of change as listing supplies increased 22.7% to 1.35 million units for sale.

Amid these market conditions, the Federal Reserve lowered mortgage interest rates by 0.50% in mid-September, responding to a softening labor market and a rise in unemployment to 4.2%. Freddie Mac reported the 30-year fixed-rate mortgage averaged 6.2% as of September 12, down from 7.18% a year ago.

Lower rates can make a significant difference. For example, a $400,000 home with 20% down at 7% interest results in a $2,129 monthly payment, which drops to $1,919 at 6%. Over the life of a loan, this reduction can save tens of thousands in interest.

Another variable is the new commission rules by NAR that took effect on August 17, 2024. Previously, listing agents typically asked for 5% to 7% commissions from home sellers, splitting them with other agents to incentivize showings and sales. This method has changed. Now, agents listing homes can no longer include offers of compensation to other agents in MLS listings. This puts homebuyers in the position of signing representation agreements upfront and specify how much they’re willing to pay their agents if the seller’s concessions don’t cover those fees. Sellers can still offer compensation to agents, but it may need negotiating as part of the prospective buyer’s overall offer. This shift could lead buyers to represent themselves or seek agents with flat-fee or a la carte services.

The market’s next steps remain uncertain, especially as many buyers and sellers adopt a wait-and-see approach. A Bankrate survey found that 35% of current homeowners would consider selling if rates fell below 6%, but with most existing mortgages already below that rate, further rate drops might be needed to stimulate new listings.

Your Berkshire Hathaway HomeServices Colorado Real Estate Forever AgentSM is always here to help with your real estate needs and questions. Call us at 303-905-8850 or visit BHHScore.com