Have Homebuyers finally had enough?
The US housing market, long hampered by a shortage of available homes, is finally seeing an increase in listings. However, this influx is not being met with a corresponding rise in buyers. Sellers are facing the harsh reality that sustained high mortgage rates are stifling demand during what is typically the peak season for real estate transactions. As a result, many sellers are resorting to reducing their asking prices, a trend not seen since November 2022, according to data from Redfin Corp.
“With mortgage rates rising back over 7%, the willingness of homebuyers to take a stab this season is diminished,” stated Ralph McLaughlin, senior economist at Realtor.com. “You can have high prices or you can have high mortgage rates, but you can’t have both for long.”
Earlier this year, there was optimism that the Federal Reserve might cut rates, which could have rejuvenated a housing market that had experienced its worst year for sales of previously owned homes in nearly three decades. However, the robust economy dashed those hopes, making interest rate cuts unlikely in the near future.
“Without the rate cuts, a cold reality is settling down on the housing market,” said Robert Frick, corporate economist for Navy Federal Credit Union.
High borrowing costs continue to offer little reprieve for homebuyers. The average rate on a 30-year mortgage has remained near 7% since mid-April, while home prices have continued to climb. As of the four weeks ending May 26, the median sale price had increased 4.3% from the previous year, reaching a record $390,613, according to Redfin.
The high borrowing costs are squeezing out a wide range of house hunters. Sales of new homes, previously a bright spot in the inventory-constrained market, declined in April. Additionally, contracts to purchase existing homes that month fell to their lowest level in four years. This trend is causing listings to accumulate, rather than being quickly matched with buyers, as noted by McLaughlin from Realtor.com.
Lawrence Yun, chief economist for the National Association of Realtors, described the spring selling season as “definitely a disappointment.” He had anticipated that sales would increase throughout the year.
Geographical variations are notable in the housing market trends. While overall sales are declining in the US, certain regions are experiencing different dynamics. Sun Belt markets, including Florida and Texas, which saw a boom during the pandemic due to an influx of new arrivals, are now cooling as people are priced out. Conversely, western metros such as Seattle and the San Francisco Bay area, which underwent sharper corrections in late 2022, are beginning to recover.
Contract signings were down by at least 14% in cities like Houston, West Palm Beach, Florida, and Atlanta. However, San Jose, California, saw a surge in contract signings by roughly the same percentage, based on year-over-year data from Redfin for the four weeks through May 26. Redfin’s measure of pending sales was down 3.4% nationwide.
In the suburbs north of Nashville, homes that once sold almost immediately are now languishing on the market. Don Hackford, a real estate agent in Hendersonville, Tennessee, recounted how a developer client had to pull two homes off the market after receiving low-ball offers. “Everything has kind of stagnated, and it’s frustrating for Realtors because it’s like we’re being shut out,” Hackford said. “There’s no work.”
In Florida’s southwestern coast, an area affected by skyrocketing home insurance rates, the number of active single-family home listings in the Punta Gorda area doubled to 2,143 over the past year. The median sale price of a single-family home fell by almost $30,000 to $351,000 in April compared to a year ago, according to Leanne Walker, a local broker and president of Realtors of Punta Gorda-Port Charlotte-North Port-DeSoto Inc. “It has gotten very flat,” Walker said. “It has become very much a buyer’s market. Lots of price reductions happening.”
Redfin Economist Chen Zhao indicated that price growth could slow more broadly in the coming months. However, any deceleration is expected to be gradual due to the pent-up demand from the Millennial generation, which will likely continue to support the market. “The consensus expectation was that rates would have eased by now, bringing more demand and supply and higher transaction volume,” Zhao said. “But instead we’re continuing to slog around the bottom that we reached about 18 months ago.”
