Challenges Await as House Hunting Becomes Increasingly Difficult
The current housing market presents a challenge for homebuyers exploring the resale market, with limited options available. This scarcity is set to worsen, as the number of homes for sale dropped below year-ago levels for the first time in 59 weeks, despite initially showing a 7% increase compared to last year, according to Realtor.com.
In the last week of June, new listings decreased by 29% compared to the same week last year, indicating a more significant drop when compared to previous weeks. The surge in mortgage rates, recently exceeding 7% on the 30-year fixed, dissuades homeowners from selling their properties. Most mortgage holders still benefit from interest rates below 4%, with some even below 3%.
This tightening housing market suggests that home prices are unlikely to cool down. Prices reached their peak in June last year, marking a 45% increase from pre-pandemic levels. Although prices dipped due to a rapid increase in mortgage rates, they hit a low point in January, as confirmed by the latest S&P Case-Shiller home price index. This decrease occurred despite higher interest rates and slower sales. Craig Lazzara, Managing Director at S&P DJI, states that the recovery in home prices is widespread.
Pending sales, which measure signed contracts on existing homes, declined nearly 3% from April to May, according to a report from the National Association of Realtors. NAR’s Chief Economist, Lawrence Yun, mentions that despite this decline, the housing market remains resilient, with approximately three offers for each listing. However, the lack of housing inventory obstructs the full realization of housing demand.
Conversely, tight market conditions have benefited the nation’s homebuilders, evidenced by a 12% increase in sales from April to May, according to the U.S. Census. Higher mortgage rates have had less of an impact, as builders, some of whom have their own mortgage arms, have been able to offer reduced rates for buyers. In May, the number of homes sold but not started was twice as high as the same period last year.
While there has been an uptick in single-family housing starts, they still remain below historical levels. Builders have been operating below capacity since the recession, resulting in an undersupplied market even before the recent surge in demand caused by the pandemic.
Peter Boockvar, Chief Investment Officer at Bleakley Financial Group, noted that while there is great enthusiasm among home builders due to the demand for more supply, the existing home market is in a state of depression. It is experiencing a serious case of stagflation, with minimal transactions occurring but at persistently high prices.