Despite Falling Sales, Home Prices Continue to Rise: What’s Happening?

Today’s US housing market is a study in contradictions. After a period of intense and often frenetic buyer activity during the pandemic period, sales have been on the decline. Housing stock, which was extremely scarce before the pandemic, is slowly starting to become a little more abundant.

But house prices have continued to rise and mortgage rates have soared this year. As a result, affordable homeownership opportunities remain an elusive commodity.

According to data released July 20 by the National Association of Realtors (NAR), existing home sales fell for the fifth consecutive month in June to 5.12 million, down 5.4% from the previous month. and a decrease of 14.2% compared to a year earlier. The median existing home price for all housing types in June was $416,000, up 13.4% from the $366,900 level in June 2021, marking 124 consecutive months of price increases. year after year and a new record.

“The housing market is going through a period of adjustment today,” observed Danielle Hale, chief economist at “We like to think of it as a ‘refresh’ – the word the Fed has used to describe what’s happening in the housing market is a ‘reset’.”

Hale added that many buyers today find themselves in a market that is not moving in their favor.

“This combination of higher prices and higher mortgage rates has made buying a home much more expensive than it was a few months or even a year ago,” she said. “And that means many buyers need to re-evaluate their plans.”

Anthony B. Sanders, chief economist at Artesia Economics and former head of asset-backed and mortgage-backed securities research at Deutsche Bank, highlighted how the housing market has become divided between haves and have-nots. .

“We get this bifurcated housing market,” Sanders explained. “For rich people, they always buy houses like crazy. But for housing, it’s sort of a starter – housing that appeals to the lower middle class – we’re seeing a price spike.

Sanders added that because of this market split, there has been “a big downturn in the mortgage market in terms of demand activity, particularly refinancing. But we are also seeing a slowdown in purchases.

Joel Kan, associate vice president of economic and industry forecasts at the Mortgage Bankers Association, noted that the housing market has been further battered by the record inflation rate associated with the Federal Reserve’s strategy of raising rates. of interest.

A For Sale sign is displayed outside a home in Washington, DC on March 14, 2022. (Stefani Reynolds/AFP via Getty Images)

“And now, with the prospect of a weaker economy and high risk of recession, potential buyers have backed away even more,” Kan said. “Additionally, new homebuilding data has been weaker lately, with a slower pace of housing starts and permits, as well as deteriorating homebuilder sentiment due to lower traffic. pedestrian area of ​​potential buyers.”

Mac Cregger, senior vice president and divisional director at Atlanta-based Angel Oak Home Loans, defined limited opportunities for affordable homeownership as “the biggest housing challenge that exists in our nation. and warned that record house prices lead the risk of distorting the housing market.

“When you take most of the major markets, 40-50% of those markets have middle-income earners who can’t afford the average sale price because it’s increased dramatically over the last two or three years. “Cregger said. “I think it will have to stabilize because we are at a critical point. If we don’t take care of it, we will move to a country that lives over several generations, like many European countries where someone cannot afford to buy land to build on or afford a house.

Housing inventory

Housing inventory also complicates matters. NAR said total housing inventory at the end of June was 1.26 million, down from 1.23 million a year earlier. But even though there are more homes available, they are being snapped up faster than ever – NAR added that properties typically remained on the market for 14 days in June, up from 17 days the previous year.

“It’s anything but a healthy market – it’s a very unhealthy market,” said Craig Oshrin, real estate broker at RE/MAX Heritage in Westport, Connecticut. “Right now we’re probably running between one and two months of inventory, which is very unbalanced. My concern is that when things are too good for one party and not a balance for both, it represents an economy where both parties lack confidence for the transaction to occur.

This dilemma has proven beneficial to the rental housing market. Danielle Hale of recalled that in January there was an even split within the nation’s 50 largest metropolitan areas on whether it was more cost-effective to rent or buy a starter home.

But, said Hale, “In June, there was no competition: in about three-quarters, or 38 of the 50 largest metros, the monthly cost of renting is less than buying a first house. And it’s not that renting has gotten cheaper – rents are also going up in general. It’s just that the increase in the cost of buying a home has outpaced the increase in rents.

“If you look at the monthly payment amount to buy a typical house listing at today’s mortgage rate, compared to a year ago, it’s up more than 50%,” Hale added. “Today your principal and interest will be around $2,000. A year ago it was only $1,300. And revenues are going up, but they’re certainly not keeping up with that kind of 50% increase.

Phil room