(Bloomberg) — The U.S. housing market is finally starting to see an uptick in listings after years of being stymied by a lack of inventory. But now, in many areas, buyers are simply not on the market.
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Sellers are struggling with the fact that prolonged periods of high interest rates are stifling demand at a typically critical time for the market, and more owners have been lowering their asking prices since November 2022 as inventory ages, according to Redfin.
“With mortgage rates back above 7%, people are less willing to buy a home this season,” said Ralph McLaughlin, senior economist at Realtor.com. “You can choose between high home prices or high mortgage rates, but you can't have both for long.”
The prospect of Federal Reserve rate cuts this year sparked some optimism for a housing market just coming off its worst year for existing-home sales in 30 years, but the economy remains strong, fading hopes that interest rates will be cut anytime soon.
“Without interest rate cuts, the housing market is going to face some harsh reality,” said Robert Frick, corporate economist at Navy Federal Credit Union.
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Buyers are seeing little to no relief from high borrowing costs — the average interest rate on a 30-year mortgage has remained near 7% since mid-April — and prices continue to rise: In the four weeks ending May 26, the average sales price rose 4.3% from a year ago to a record high of $390,613, according to Redfin.
Homebuyers of all kinds are being shut out of the market. Sales of new homes, a bright spot in an inventory-starved market, fell in April. Contracts to purchase existing homes fell to a four-year low that month. The downturn is causing listings to pile up rather than be matched with buyers, according to Realtor.com's McLaughlin.
Lawrence Yun, chief economist for the National Association of Realtors, said the spring home selling season so far has been “definitely disappointing.” “At the beginning of the year, we thought we would see sales increase throughout the year.”
Nationwide
Sales are down on average across the U.S., but geography is also a factor: Sunbelt markets like Florida and Texas that boomed during the pandemic due to an influx of new residents are now cooling as soaring prices make them unaffordable, according to Redfin. Meanwhile, major Western metropolitan areas like Seattle and the San Francisco Bay Area saw larger corrections in the second half of 2022 and are already starting to recover.
Year-over-year data from Redfin for the four weeks ending May 26 showed contract signings fell by at least 14% in Houston, West Palm Beach, Fla., and Atlanta, but increased by nearly the same amount in San Jose, Calif. Redfin's number of pending sales fell 3.4% nationwide.
Don Hackford, a real estate agent in Hendersonville, Tennessee, said that 18 months ago, homes in his fast-growing suburb north of Nashville wouldn't even sell for a day. Now, he just took two homes off the market after his developer clients received low offers.
“It feels like everything is at a standstill and it's frustrating for real estate agents. It feels like we're being shut out,” Hackford said. “There's no work.”
The number of single-family homes currently for sale in the Punta Gorda area along Florida's Southwest coast, a booming region hit hard by rising home insurance costs, has doubled in the past year to 2,143. Meanwhile, the average sales price of a single-family home fell nearly $30,000 in April from a year ago to $351,000, said Leanne Walker, a local broker and president of Punta Gorda-Port Charlotte-North Port-DeSoto Realtors.
“It's really flattening out,” Walker said. “It's a total buyer's market. We're seeing price cuts all the time.”
Redfin economist Chen Chao said price growth could slow more broadly in the coming months, but the slowdown is likely to be gradual, given that pent-up demand from millennials is set to continue to drive the market higher.
“The consensus was that interest rates would have eased by now, which would have increased demand and supply, and led to increased transaction volume,” Redfin's Chao said. “But in reality, they're still struggling near the troughs they reached about 18 months ago.”
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