A “For Sale” sign is seen outside a house in New York.
Shannon Stapleton | Reuters
The slowdown in the overheated housing boom has been astonishingly fast.
The US housing market has surged during the pandemic as people staying at home have sought new places to live, buoyed by record low interest rates.
Now, real estate agents who once reported rows of buyers outside open homes and bidding wars on the back deck say homes are sitting longer and sellers are having to lower their sights.
This has led potential buyers and sellers to wonder where they are.
“While recession fears weigh on consumer expectations, our survey shows that uncertainty has worked its way into the minds of many buyers,” said Danielle Hill, chief economist at Realtor.com.
Here are the main factors behind the upside-down housing market.
Mortgage rates
The main driver of the slowdown is rising mortgage rates. The average rate on a 30-year fixed-rate mortgage, the most popular product today, which accounts for more than 90% of all mortgage applications, started this year around 3%. It’s now just above 6%, according to daily mortgage news.
This means that a person who buys a $400,000 home will have a monthly payment now about $700 more than it did in January.
High prices and low supply
Other drivers of the slowdown are high prices and lack of supply.
Prices are now 43% higher than they were at the start of the coronavirus pandemic, according to the S&P Case-Shiller National Home Price Index. The supply of homes for sale is up 27% at the beginning of September compared to the same time last year, according to Realtor.com. While that comparison sounds great, it’s still not enough to make up for the years-long shortage of homes for sale.
Active inventory is still 43% lower than it was in 2019. New listings are also down 6% at the end of September, which means potential sellers are now worried as they see more homes on the market for longer.
Paul Legere is a buyer agent with the Joel Nelson Group in Washington, DC. Focusing on the competitive Capitol Hill neighborhood, he said he saw the listings jump from 20 to 171 right after Labor Day. He now describes the market as “bloated”. By comparison, only 65 homes were offered for sale in March.
“This is a very traditional bump in post-Labor Day stock, and seeing how the market absorbs new stock in a week or so is going to be critical,” he said. “very.”
Inventory has taken a hit nationally as home builders are slowing production with few potential buyers touring their models. Housing starts for single-family homes fell 18.5% in July compared to July 2021, according to a US census.
Housing construction sentiment in the single-family market It fell into negative territory in August for the first time since a brief dip at the start of the pandemic, according to the National Association of Home Builders. Builders reported lower sales and poor buyer traffic.
“More tight monetary policy from the Federal Reserve and persistently high construction costs are causing housing stagnation,” NAHB Chief Economist Robert Dietz said in an August report.
Some buyers are stuck
However, the buyers have not completely disappeared, despite the still expensive selling market and expensive rental market.
“The data suggests that some home shoppers are finding silver linings in the form of cooling competition for the increasing numbers of home sale option,” said Realtor.com’s Hill. “Especially for buyers who are creative, such as exploring smaller markets, this fall may provide relatively better chances of finding a home within budget.”
Home prices are finally starting to cool down. They fell 0.77% from June to July, the first monthly decline in nearly three years, according to Black Knight, a provider of mortgage technology and data.
Although the drop may seem small, it is the largest one-month price drop since January 2011. It is also the second-worst performer in July dating back to 1991, after falling 0.9% in July 2010, during the Great Recession.
Affordability problems
However, this drop in prices will do little to improve the affordability crisis caused by rising mortgage rates. While rates fell slightly in August, they rose sharply again this week, making it the least expensive week for housing in 35 years.
It currently takes 35.51% of the average income to make the monthly principal payment, interest on the average home with a 30-year mortgage, and a maximum of 20%. That’s slightly up from the previous 35-year high in June, when the pay-to-income ratio reached 35.49%, according to Andy Walden, vice president of enterprise research and strategy at Black Knight.
In the five years before interest rates began to rise, the income-to-payments ratio has held steady at around 20%. Although home prices rose in 2020 and 2021, record low interest rates offset the increases.
“Given the significant role that affordability challenges play in changing housing market dynamics, the recent downturn in housing prices is likely to continue,” Walden said.
A new report from real estate brokerage Redfin shows that while home-buyer demand woke up a bit in August, the recent increase in mortgage rates over the past week has put it back to sleep. Fewer people searched for “homes for sale” on Google with searches during the week ending September 3 — down 25% from the previous year, according to the report.
The Redfin Demand Index, which measures requests for home tours and other home-buying services from Redfin agents, showed that during the seven days ending September 4, demand was up 18% from its 2022 low in June, but was still down 11% compared to last year. general.
“The housing market is always cool at this time of year, but this year I expect fall and winter to be especially freezing as sales dry up more than usual,” said Daryl Fairweather, chief economist at Redfin.
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