There is a change happening in the housing market.
After more than a year of booming demand, skyrocketing house prices and rising real estate sales, the market finally seems to be calming down.
“The housing market is not crashing, but it is experiencing a hangover as it descends from an unsustainable high,” said Taylor Marr, deputy chief economist at Redfin.
Mortgage rates have risen more than two and a half percentage points this year. And the the higher costs of financing a home have changed the math for many potential buyers. As a result, year-over-year home sales have fallen in recent months.
In a Fannie Mae survey of homebuyer sentiment, a record 79% of respondents said now was a bad time to buy a home.
“While many home sellers are already lowering prices, more homeowners will likely decide to stay put now that the mortgage rate for a new home is significantly higher than the current rate,” Marr said.
While the market is still very strong by historical standards, here are five reasons to believe the tide is turning.
With demand for homes outpacing supply, the inventory of homes for sale steadily declined year-over-year during the pandemic housing boom, said Danielle Hale, chief economist at Realtor.com. “We were talking about low inventory in 2019 and it just kept getting worse.”
But in May, inventory started moving in a different direction, according to data from Realtor.com, and the most recent week saw active listings up 13% from a year ago.
“Seeing the number of homes increase is great news for buyers,” Hale said. “It changes the trend and they see more houses. This should help balance the market, slow house price growth and increase time on market. »
In addition to high costs pushing potential buyers out of the market, part of the reason there are more announcements is that more owners decide to sell, Hale said. According to Realtor.com, more new listings entered the market in May than any other month since June 2019.
“But home prices are showing a lot of gripping power,” Hale said. “Price growth will slow down, but I expect prices to stay high. If home sellers can’t get the price they want, they probably won’t put it on the market. »
If you’ve been looking at homes, you might have noticed something you haven’t seen in a long time: price drops.
For a time, homes were selling so quickly, and often with bidding wars, that sellers usually got more than they asked for. But as affordability issues squeeze buyers and there’s less competition to buy, some sellers are deciding to lower their prices.
Price drops were seen in 10.5% of homes in May, down from 6.2% in May 2021, according to Realtor.com.
But that doesn’t mean there’s a clearance sale on the homes.
“The share of homes with price cuts is higher now, but the May share is still lower than every May going back to 2017,” Hale said. “It’s less competitive than last year, but it’s still quite competitive.”
With less activity in the housing market, real estate companies are announcing layoffs.
This week, Redfin said it cut about 8% of its employees and Compass said it would cut its workforce by 10%.
Demand for Redfin’s services in May was 17% lower than expected, said Redfin CEO Glenn Kelman. As a result, the company does not generate enough work for agents and support staff.
“Today’s layoff is the result of a shortfall in Redfin’s revenue, not people being made redundant,” he said.
At Compass, 450 of its 4,500 employees will be laid off, “due to clear signals of slowing economic growth,” according to a company statement.
The cuts follow other contractions in the housing sector as the scorching housing market began to smolder.
As mortgage rates have skyrocketed, potential buyers are asking for fewer loans.
In the week ending June 10, mortgage purchase requests were down 16% from a year earlier, according to the Mortgage Bankers Association.
“Purchase inquiries were down from a year ago as inventory shortages and affordability issues cooled demand, coinciding with rapidly rising mortgage rates,” said Joel Kan, vice president. MBA Economic and Industrial Forecasting Associate.
With mortgage rates well above 5%, the refinance activity that was on fire when rates were at their lowest during the pandemic has dried up, down more than 70% from a year ago.
With prices so high and mortgage rates continuing to climb, fewer people seem to be buying homes right now.
A Redfin index that gauges demand from homebuyers – measuring requests for home visits and other home-buying services from Redfin agents – is down 14% year-on-year over the past of the week ending June 12. It was the ninth consecutive week of decline in the index.
“If it weren’t for the spike in mortgage rates, the housing market would still be booming right now,” said James Cappello, a Redfin agent in the Bay Area. “Demand from homebuyers was still extremely high in February, but the rates are making it very difficult. Going from 3% to nearly 6% almost instantly spooked a lot of people out of the market.
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