Homebuyer budgets remain flat from last year, rising just 0.3% in the three months ended April 30, according to a new Redfin report, which noted it as the slowest growth rate since June 2020.

Redfin based its analysis on the average maximum budget set by those using its online services and says those declines are a leading indicator that home-price growth has passed its peak and will begin to slow. 

And that’s not all.

The company also says the decline is a sign high mortgage rates are having a big impact on how much money buyers can spend, as more of their budgets are going toward interest payments. 

“When mortgage rates go up, buyers’ budgets go down,” said Redfin deputy chief economist Taylor Marr. “And when buyers’ budgets go down, sellers have to meet buyers where they are. Budgets haven’t fallen from a year ago and we don’t expect home-sale prices to fall, either. But 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.”

The report found budgets hit their peak growth last April at 12.2%, three months before home sale prices hit their peak, increasing 22.6% year over year last July. 

Redfin economists say they expect the cooldown in budgets to lead to a cooldown in price growth over the next few months. 

While buyers are taking things more slowly, sellers aren’t as quick to adjust, but they are starting to react, with 21% of sellers dropping asking prices in the last four weeks – up from 10% last year. 

The slowdown in homebuyer budget growth began in January. According to Redfin, budgets increased 5.1% year over year in December and declined every month since then, coinciding with rising mortgage rates. For most of last year, mortgage rates were around 3% and are now at 5.2%, as they have continued to grow since January. 

The slowing of prices is good for buyers, but they still have to deal with rising mortgage rates. 

“Buyers are qualified to borrow less money because of rising rates, which means they’re searching for less-expensive homes,” said Fresno Redfin agent Dennis Rozadilla. “There’s still limited supply and a surplus of buyers, but buyers are pickier now, and their budgets are more limited.”