Mortgage rates rose above 7 percent again on Thursday, worsening the affordability problem that has helped turn much of the housing market in buyers’ favor. That sounds contradictory because a buyers' market usually suggests good conditions for people trying to purchase a home. But “buyers’ market” describes bargaining power, not affordability.
There are fewer people competing for homes, so buyers who can still qualify for a mortgage have more leverage over sellers. They can negotiate over price, demand repairs, ask for help with closing costs and walk away more easily. The reason they have that leverage, however, is that many other potential buyers can no longer afford to compete.
High mortgage rates have reduced what households can comfortably borrow without producing an equivalent fall in home prices. Demand has weakened, but affordability has not improved by nearly as much. The result is a market in which buyers are scarce even though homes remain expensive.
That scarcity is shifting power toward the buyers who remain. Redfin estimated that sellers outnumbered buyers by nearly 58 percent in August, the widest gap in its records dating to 2013. Sellers have increasingly responded with price cuts and concessions.
But those advantages arrive only after a household has cleared the much larger hurdle of financing the purchase. A buyer might persuade a seller to cover several thousand dollars in closing costs or accept an offer below asking. A mortgage rate around 7 percent can add far more to the cost of owning the home over time.
That is what makes the current market unusual. Buyers have gained transactional power without gaining equivalent purchasing power, a fact that illustrates why calling this a buyers’ market can be misleading. It describes the balance of power between buyers and sellers already in the market.
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