The real estate market is slowing, but that doesn’t mean home prices are getting more affordable – yet. In fact, prices and rents are still rising.
Why this is important: Maybe you’ve thought about the real estate market all over the place, location, location. Well, it’s actually about supply, supply, supply. The US does not have enough homes to meet demand – even now, fewer people want to buy in the face of rising mortgage rates.
- “Whatever the issue of affordable housing,” says Redfin chief economist Daryl Fairweather.
- This is another sign of how difficult it is for the Fed to break the backs of rising inflation.
Run to news: Fresh data from the National Association of Realtors shows that the spring sales season has slowed this year, with sales falling 8.6% in May from last year.
- At the same time, the average price of an existing home has crossed the $ 400,000 barrier for the first time.
- Mortgage rates hovered near 6% and the number of sales decreased as buyers panicked. And sellers are not incentivized to move – most are sitting on low mortgage rates earned during the epidemic refi boom.
Meanwhile, rents are skyrocketing. According to CoreLogic, a real estate analytics firm, new rents for single-family homes (half of the residential market) increased by 14% in May from last year.
- In Miami, rents are up 41% over last year!
- Another rental report on Wednesday from Realtor.com shows average rents at 26.6% above the epidemic – but a slow increase in recent months.
- Rising mortgage rates can put a lot of pressure on the rental market: as first-time buyers postpone a new purchase, they become dependent on rent.
Between the lines: There should be four to six months of supply homes for sale in a healthy housing market; That’s the length of time it takes to sell all the inventory.
- According to the NAR report, we are currently on a 2.6-month supply. Even less, but actually a 33% increase from February, says Ian Shepherdson, chief economist at Pantheon Macroeconomics.
- Shepherdson is one of the few real estate market watchers who decides that home prices will fall, rather than just fall. In his research note, he explains that after calculating seasonal adjustments, single-family home prices fell slightly in May.
- The market is “tough and will soon be tough,” he wrote.
Zoom Out: Due to the role real estate played in the financial crisis, a lot of people are now looking at housing as a measure of the overall economy. But we are in a completely different ballgame compared to 2007 – homeowners are sitting on record-level equity and cheap mortgages.
What to watch: There has been a lot of debate about the risk of a recession and certainly the recession is affecting the housing market. CoreLogic’s chief economist, Molly Bosell, says unemployment can lead to an increase in debt woes – but not to the level we have seen, thanks to those equity cushions and strong mortgage underwriting.