What a difference a few months make. With the rise in interest rates and inflation, we have seen homes go from selling almost before the ground is broken for the sign, to now homes are sitting on the market for days, if not weeks. For example, according to Altos Research, one Seattle bedroom community, Sammamish, saw 37% of homes during the first week of June have a price reduction.
- Home sellers really need to re-think their expectations.
- The days of “multiple offers and waived inspections are behind us.”
- Active Listings up a whopping 59% from a year ago.
- Both pending sales (mutually accepted offers) and closed sales during May were down from a year ago.
- Rising interest rates coupled with inflation are causing buyers that rely on conventional mortgages to reconsider the affordability.
The Real Estate Market “Shift” Is Here
Looks like America's home buying binge is winding down. There's a vibe shift visible in both the official data and in the anecdata from sellers, buyers, and brokers.
Why it matters: This is just what Jerome Powell ordered. The slowdown means the Fed's rate hikes are working — cooling demand in an overheated market.
"The buyers just stopped buying," said Shauna Pendleton, an agent with Redfin. Buyers who were flush with cash courtesy of the also formerly booming stock market have completely pulled back.
- Some listings now sit for weeks without even a showing. Some homes are sitting for 42 days without a single showing.
- Redfin agent Robin Glaysher said five people showed up to an open house last weekend; previously there would've been a line out the door.
- "It's a completely different market now," said Glaysher.
- The change is a boon for some buyers — like those relying on FHA loans that require only 3.5% down, she said. In the old times they were often outbid by cash buyers, who have now vanished.
Driving the news: Nationally new home sales plunged in April, falling 16.6% from March to 591,000, well below economists' forecast of 750,000, according to data out Tuesday. It's the slowest pace since April 2020 — when the economy froze for a minute before the boom began.
- Existing home sales — perhaps a better measure of the U.S. market since it's a much larger segment — are also trending down, falling for three straight months, according to the National Association of Realtors.
- Mortgage rates have soared since March and with the 30-year now hovering at around 5.45%, the highest it's been in years.
- Meanwhile, new housing supply is building. Available inventory of unsold new single-family homes jumped by 8% in April to 444,000, a 13-year high.
Data: FactSet; Chart: Axios Visuals
Catch up quick: The real estate market has been, technically speaking, bananas since COVID, as the rise of remote work — and super-low mortgage rates — sent more people looking to upgrade their living space.
- The surge in demand fueled bidding wars and all kinds of wild activity — buyers waiving inspections or begging sellers to pick them, for example.
- Now, "buyers are less conciliatory, as far as giving whatever we want on the sell side,".
What they're saying: "The party is over," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note Tuesday.
- "We were going 90 miles an hour down the highway, and we took our foot off the gas," Michael Simonsen, CEO of Altos, a real estate analytics firm, tells Axios.
- "The market's shifted from "irrational to more rational," Jonathan Miller, a New York based real estate appraiser, tells Axios in an email. What used to sell in 24 hours, now could take about a month.
Yes, but: This isn't 2008. Home prices haven't started falling. Looking at Western Washington: Area-wide prices for single family home sales (excluding condos) in King County also increased, climbing nearly 20% from a year ago, from $830,000 to $995,000.
- And though the supply of newly built homes has increased, that's actually a small part of the overall market. Inventories of existing homes are still some of the lowest on record, as of April.
- “We are starting to see signs of impact from the significant rise in mortgage rates earlier this year, such as an increase in active listings and months of inventory creeping higher, but the full impact will likely not be felt for a few months,” said Matthew Gardner, chief economist at Windermere Real Estate.
- Commenting on growing inventory of single-family homes (up 27% from a year earlier), Young suggested higher priced homes requiring a mortgage “are feeling some heat from recent interest rates.”
- The NWMLS report shows there was about three weeks (.78 months) of inventory of single-family homes and condos combined at the end of April. By this metric, that is the highest level in nearly 18 months. MLS data show there was .80 months of supply in October 2020.
- With mortgage interest rates drifting upward in anticipation of the Federal Reserve’s hikes in its baseline interest rate, some brokers recommend quick action by prospective home buyers.
- “We will not likely see interest rates back to 3%. Never before has it been more important to get preapproved and get serious about finding a home as now,” stressed Leach.
The bottom line: Though the frenzy is over, "there's still a lot of pent-up demand from people who've been shopping for a year. NOW is most like the very best time to both Buy and Sell when factoring in rising interest rates which could hit 8% by January and decreasing values which may drop 10% come January 2023.