Finding the perfect home has always been a challenging task, but get ready, because it’s about to become even more difficult.
If you’ve been browsing the resale market for homes, you’re probably aware that the options are already quite limited. Well, brace yourself, because the situation is about to become even more dire.
According to Realtor.com, the number of homes available for sale this month was actually 7% higher compared to the same period last year. However, in the past week alone, the number of homes for sale has dropped below last year’s levels, marking the first time in 59 weeks that this has happened.
In the final week of June, new listings were down by a staggering 29% compared to the previous year—a more significant decline than in previous weeks.
As mortgage rates continue to rise, reaching over 7% again for the 30-year fixed rate, homeowners have little incentive to sell their properties. The majority of homeowners with mortgages are enjoying rates below 4%, and some even have rates below 3%.
With an even tighter housing market on the horizon, it’s unlikely that home prices will cool down. Prices reached their peak in June of the previous year after skyrocketing by over 45% from pre-pandemic levels. The subsequent increase in mortgage rates led to a decline in prices. However, according to the latest S&P Case-Shiller home price index, prices hit their bottom in January, despite interest rates remaining high and sales slowing down.
“The ongoing recovery in home prices is broadly based,” said Craig Lazzara, managing director at S&P DJI.
Pending sales, which measure signed contracts on existing homes, dropped by nearly 3% in May compared to April, according to a report from the National Association of Realtors.
“The lack of housing inventory continues to prevent housing demand from being fully realized,” commented Lawrence Yun, NAR’s chief economist, acknowledging the resilience of the housing market despite sluggish pending contract signings. He also highlighted that each listing receives approximately three offers, indicating strong demand.
On the other hand, homebuilders across the country have been reaping the benefits of the tight market. Sales of new homes surged by 12% in May compared to April, as reported by the U.S. Census. Higher mortgage rates have had less of an impact on builders, some of whom have their own mortgage arms, as they have been able to reduce rates for buyers. In May, there were twice as many homes sold but not yet started compared to the previous year.
While there has been a slight increase in single-family housing starts, they are still significantly below historical levels. Builders have been cautious since the Great Recession, resulting in an undersupply of homes well before the recent surge in demand caused by the pandemic.
“In summary, despite the enthusiasm among home builders due to the need for more supply, the existing home market is struggling and experiencing a serious case of stagflation, with limited transactions occurring but at persistently high prices,” commented Peter Boockvar, chief investment officer at Bleakley Financial Group.
As potential homebuyers face the challenges of a dwindling inventory and soaring prices, the housing market’s future remains uncertain. Only time will tell how the situation evolves and whether there will be relief for those in search of their dream home.