Market Snapshot
The residential real estate market is experiencing perplexing times, to say the least. While several experts have expressed opinions that affordability has become a big issue in recent months as some would-be homebuyers simply could not afford the higher monthly payment with the rise in interest rates, other experts declare that homebuyers are seeing more opportunity with higher inventory and some lower home prices.
So, what is a consumer to believe? The truth is, both perspectives are true. We are seeing affordability concerns and we are seeing an increase in inventory.
The National Association of Realtors® (NAR) reported that signed contracts to purchase existing homes dropped 20% in June compared with the same month a year ago. That is the slowest pace since September 2011, with the exception of the first two months of the coronavirus pandemic lockdowns, when sales plunged briefly and then rebounded sharply. Pending home sales also fell a wider-than-expected 8.6% in June from May. Economists polled by Dow Jones had predicted just a 1% drop.
The steep declines coincided with a sharp jump in mortgage interest rates. The average on the 30-year fixed loan crossed over 6% in the middle of June. As of August 5, it was at 6.665% for a 30-year fixed (a bit lower for FHA and VA). It started the year around 3%. Those high rates and inflation in the general economy are hitting buyer sentiment hard. Lawrence Yun, chief economist for NAR stated:
“Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date. There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize.”
The drop in sales was widespread, with the South and West seeing the worst of it. In the West, sales tumbled 15.9% monthly and 30.9% from June 2021.
Another report on sales of newly built homes in June, which are also counted by signed contracts, showed a similar drop, according to the U.S. Census. Builders are now offering more incentives to offload rising inventory, although prices are still higher than they were a year ago.
The NAR is now forecasting total sales for this year will be down 13%, but that they should start to rise in early 2023. But that upbeat forecast does depend on mortgage rate levels. According to George Tatiu, senior economist at Realtor.com:
“Looking ahead, a slowdown in economic activity and pullback in business investments could lead to a moderation in the pace of mortgage rate gains, as investors shift allocations toward the safety of bonds. Combined with the increase in housing supply, we could see improved opportunities for homebuyers later in the year.”
As mentioned earlier, it is a complex issue. Increased interest rates make affordability an issue, yet more inventory makes for a more favorable purchasing environment for buyers.
Whether buying or selling, it is more important than ever to work with a knowledgeable real estate agent—one who understands the market and the impacts the economy has on purchase power and pricing.
Debbie Austin is a realtor associate with Keller Williams, Roseville and has been helping clients buy and sell property in the area for 18 years. If you have a specific real estate question you wish to see addressed, contact Debbie at debbieaustin@kw.com or debbieaustinrealty.com
