This spring was a challenging one for prospective buyers. This summer might not be any better.
Higher mortgage rates, which peaked above 7% in late 2022, stopped both home buyers and sellers in their tracks, putting an end to the pandemic home-buying boom. Since the year began, mortgage rates have bounced between about 6.1% and 6.8%, adding significantly to the cost of buying a home, compared with the historically low rates earlier in the pandemic. That priced out some would-be buyers, including some who nixed listing their current homes, further reducing the number of properties up for sale.
The result: significantly fewer home sales are happening in the existing-home market, which generally makes up the majority of transactions. Existing homes in April were sold at a seasonally adjusted annual rate of 4.28 million, the slowest April rate since 2011, according to National Association of Realtors data.
Early data show the slowdown likely didn’t stop in May.
Redfin
‘s (ticker: RDFN) measure of pending home sales for the four-week period ending May 28 was 17% lower than a year ago—a decline the brokerage characterized as the second-largest since January.
Higher rates have yet to abate. Mortgage rates have been on an upward climb in recent weeks as markets updated their expectations for the path of monetary policy. The average 30-year fixed mortgage rate, which typically moves with the 10-year Treasury yield, rose to 6.79% this week, according to the results of
Freddie Mac’s
weekly primary mortgage market survey—the highest level since November.
“Mortgage rates jumped this week, as a buoyant economy has prompted the market to price in the likelihood of another Federal Reserve rate hike,” Sam Khater, Freddie Mac’s chief economist, said in a statement last week.
Initially, the market was expected to thaw by summer. Now, the summer’s prospects are looking as slow as the spring. “With mortgage rates being high, we were hoping that this summer would be a bit of a recovery for the housing market,” says Daryl Fairweather, Redfin’s chief economist. “That doesn’t look like it’s going to pan out; it looks like it’s going to be more of the same.”
As noted, a dearth of homes for sale is a problem. New listings were down 23.4% from the year prior, according to Redfin’s gauge.
That lack of inventory is a “constraint on how fast home sales can go,” says Mike Fratantoni, the Mortgage Bankers Association’s chief economist. Fratantoni doesn’t expect sellers to enter the market in greater numbers until later in 2023 or in 2024, he says.
The Mortgage Bankers Association in fact expects existing-home sales to fall to a seasonally adjusted annual rate of about 4.19 million in the third quarter, down from an anticipated 4.35 million in the second quarter.
The lack of inventory will keep home prices “essentially flat” over the next two years, Fratantoni said. “With a lack of supply, and demand still holding reasonably well, that’s keeping prices from dropping,” he says.
Prices in March, the most recent month for which Case-Shiller data is available, actually increased a seasonally adjusted 0.4% nationally from the month prior, the strongest gain since last May.
“The modest increases in home prices we saw a month ago accelerated in March 2023,” Craig J. Lazzara, Managing Director at S&P Dow Jones Indices, said in a statement. “Two months of increasing prices do not a definitive recovery make, but March’s results suggest that the decline in home prices that began in June 2022 may have come to an end.”
Indeed, Redfin data suggest that home price trends are improving. The median sale price measured by the brokerage began to fall below year-ago levels in February. The median sale price in the four-week period ending May 28 was down 1.9% from a year earlier—a drop the brokerage characterized as the smallest decline in two months.
Still, parts of the country are seeing significant price weakness. Year-over-year price declines for the four weeks ended May 28 were greatest in Austin, Oakland, Calif., and Las Vegas, according to Redfin, while prices were strongest in Milwaukee, Cincinnati, and Miami.
Write to Shaina Mishkin at [email protected]
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