Prepare for a more challenging house hunt

Individuals searching for homes in the resale market are well aware of the scarcity of options available. However, the situation is about to become even more challenging.

According to Realtor.com, the number of homes listed for sale this month is actually 7% higher than the previous year. However, in the past week alone, this comparison has turned negative, with the number of homes for sale falling below levels seen a year ago – a trend that hasn’t happened in 59 weeks.

New listings in the last week of June have dropped by 29% compared to the same week in the previous year, which represents a significant decline compared to previous weeks.

Rising mortgage rates, which have already surpassed 7% for the 30-year fixed rate mortgage, according to Mortgage News Daily, have reduced the motivation for homeowners to sell their properties. A vast majority of homeowners with mortgages are enjoying rates below 4%, with some even below 3%.

The tightening housing market is likely to prevent home prices from cooling down. Although prices peaked in June of the previous year, after registering a growth of over 45% from pre-pandemic levels, they started declining due to doubling mortgage rates at the time. However, prices reached a low point in January this year, as per the latest S&P Case-Shiller home price index, despite the presence of relatively higher interest rates and slower sales.

“The ongoing recovery in home prices is broadly based,” emphasized Craig Lazzara, the managing director at S&P DJI.

In May, pending sales of existing homes, as indicated by signed contracts, fell by nearly 3% compared to April, according to a report released by the National Association of Realtors. Chief economist Lawrence Yun stated, “Despite sluggish pending contract signings, the housing market remains resilient with approximately three offers for each listing. The scarcity of housing inventory continues to hinder the full realization of housing demand.”

On the other hand, the nation’s homebuilders are reaping the benefits of this tight market, experiencing a surge of 12% in sales from April to May, according to the U.S. Census. Higher mortgage rates seem to have less impact on homebuilders, as some of them offer their own financing options with lower interest rates to attract buyers. In fact, in May, the number of sold homes that had not yet been started was twice as high as the previous year.

Although there has been a slight increase in single-family housing starts, they still remain significantly below historical levels. Builders have been constructing fewer homes since the Great Recession, which means that the housing market has been undersupplied long before the recent surge in demand due to the pandemic.

Summing up the situation, Peter Boockvar, the chief investment officer at Bleakley Financial Group, commented, “For all the excitement among homebuilders about the need for more supply, the existing home market is in a depressed state and experiencing a serious case of stagflation, with few transactions taking place but at still very high prices.”