Market Update - Buyer Demand Slowing but Don't Expect a Crash Anytime Soon...
June 24th - Realtor.com
This month's update is courtesy of Realtor.com, as this article explains so succinctly and clearly our current experience in the market place. Please let us know your feedback and if you have any questions...
Over the past few weeks, the rate of price growth has begun to slow and fewer buyers are seeking mortgages to purchase homes. The competition for available homes, while still formidable, may not be quite as intense as it’s been. And this could provide buyers a sorely needed opening.
Rising interest rates and red-hot market competition began to take a toll on the housing market. While new and existing home sales continue to outperform last year’s levels, a gradual slowdown in housing demand is reflected in the month-to-month sales declines in both markets.
“The market’s topping out,” says Mark Zandi, chief economist at Moody’s Analytics. It’s “starting to show cracks. It feels like we’ve hit the apex, and we’re moving to the other side of it.”
Median home list prices are still more than 12% higher than they were the same time a year ago. But a combination of homebuyers being priced out of the market, a severe shortage of properties for sale, fears of another real estate bubble, and a return to pre-pandemic life may have dampened the full-throttle demand we’ve been seeing all year.
This could result in fewer bidding wars and more reasonable offers over the asking price. And it might just provide the opening that many weary buyers need.
“Buyers may be taking a break from the housing market, “says Realtor.com® Chief Economist Danielle Hale. “There have been signs that the momentum in the housing market is slowing. The competition might not seem as intense as it’s been in the last few months.”
Reality check: Home prices nationally aren’t expected to actually go down anytime soon. They’re still expected to keep climbing. But many real estate experts predict a deceleration and that home price growth could be in the single digits by the end of the year.
“Prices have got to start moderating. Laws of housing gravity say prices can’t continue rising at double digits. It’s just not supportable,” says Zandi. “The market is hitting the limits to what kinds of prices we can see.”
Home prices are unlikely to drop because of laws of supply and demand: There are still more people who want homes than there are places for them to live.
Meanwhile low mortgage interest rates—for a time touted as the lowest we may see in our lifetime—are also continuing to juice demand.
“Prices are still at record highs, and I expect them to hit another record or two this summer,” says Hale. “Buyers aren’t going to get a deal, but they might be competing with fewer offers.”
Sellers are expected to keep prices elevated. They’ve seen their neighbors’ homes recently sell for exorbitant prices and are thinking to themselves they have an extra bedroom, more acreage, or a newly remodeled kitchen. So their home should fetch even more. They may hold out for more money. If the bidding wars they’ve envisioned don’t materialize, they could remove the “For Sale” signs from their front yards. Fewer properties for sale mean higher prices.
Why the housing market is beginning to soften...
However, as more folks return to offices, that could alter housing demand, and cool down some markets. Folks may be less willing to move farther out when faced with the prospect of long commutes. Plus, they may not need as much space now that the kids are going back to in-person schooling and gyms are reopening.
“The surge in demand created by the work-from-anywhere phenomenon is starting to fade,” says Zandi. “People may be rethinking living in the middle of Utah or in Tampa, or wherever, and start going back.”
The Great Unfreezing of America is providing a host of distractions for buyers. There are concerts and sporting events, and vacations and restaurants, and all kinds of other things competing for their down payments. Buyers may not want to max out their budgets on a house when there are other things they can spend their money on.
Many buyers are also frustrated by the lack of homes for sale and can’t afford the double-digit price increases that have become par for the course over the past year. They’ve had it. So they’re sitting it out until prices, offers over asking, and bidding wars calm down.
Why any slowdown could lead the housing market to pick right
back up again...
A less heated real estate market may present a welcome opportunity for buyers—but conditions could reverse quickly. In an ironic twist, many of those aspiring homeowners who took a break from the open houses and bidding wars may jump back into the fray as the market begins calming.
“The buyer pool is deep enough to keep the housing market strong,” says Zonda’s Wolf. “We’re not expecting it to become a buyer’s market anytime soon.”
Real estate experts don’t believe the market will really slow down until mortgage rates significantly jump up. Currently, they’re hovering around 3% for 30-year fixed-rate mortgages. While they fell into the mid-2% range last year, rates are still at historic lows, making mortgage payments more affordable for buyers. If they shoot up, that equation will change.