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Homebuying & Selling
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3 min read
Economic headwinds keep mounting as fears of a looming recession grow stronger. The blockbuster June CPI report that put inflation at 9.1% blew the doors off economists’ best previous estimates and sent shockwaves through financial markets earlier this month.
Consumers and businesses across the board are feeling the sting of higher prices and the housing market is no exception. The latest numbers show home prices are decreasing slightly for the first time since the pandemic began and supply is creeping back up.
Consider the following indicators of homebuying activity:
- For the week ending July 21, 30-year mortgage rates rose to 5.54%. This is lower than a 2022 high of 5.81% but up from 3.11% at the start of the year.
- The term “homes for sale” turned up in fewer Google searches 23% less often during the week ending July 16 than a year earlier.
- Home tours were down 2% from the start of the year, compared to a 22% increase in July last year.
- Mortgage purchase applications were down 19% annually for the week ending July 15. This is the lowest level since April of 2020.
New Home Construction Slowed in June
New home construction slowed in June as housing permits and new home starts fell from the previous month’s levels.
According to US News, permits came in at 1.685 million, down 0.6% from the revised May reading of 1.695 million while starts fell 2% to 1.559 million, compared to May’s revised 1.591 million.
Home Supply Creeps Up for the First Time Since 2019
Increasing mortgage rates are sidelining some potential homebuyers, leading to a slight build-up in available homes.
In June, the total number of homes on the market rose by 2%—the first time we’ve seen an annual increase since July 2019. The homebuying frenzy that has characterized the last few years appears to be cooling off.
The housing supply is mounting due to mortgage rates rising to 5.5% or more, high home prices, and an uncertain economy. These conditions are poised to create a more balanced market.
Home sales for June are down nearly 16% from this time last year, representing the most significant decline since May 2020. Cooling home sales have started impacting sale prices, which are still growing by double digits, but just barely.
Home Prices Begin to Fall from Record Highs
The highest inflation rate in four decades and correspondingly high mortgage rates are negatively impacting homebuyer budgets. As sales take a hit, home prices are falling slightly.
Home sales are down slightly (0.7% for the week ending July 10) from a record-breaking June that many are calling the peak of the post-pandemic buying spree.
Asking prices dropped 3% from a high in May and the share of homes whose prices have dropped reached a high in July.
This very slight cooling of the housing market may be a signal that high inflation has caused buyers to reach their limit on costs.
Homes Are Staying on the Market Slightly Longer
Prospective homebuyers can now take a bit more time touring homes before making an offer. Selection is still limited despite a slight increase in supply, so buyers will still want to jump on opportunities quickly.
Homes that sold in the month before July 17 spent an average of 19 days on the market—up by one day this time last year. It may not sound like much of a move; this is the first time in two years the median time a home spends on the market has increased.
For the past two years, buyers have had a tough time scrambling with high competition and over-asking bids. There are finally signs that the historically hot sellers’ market is cooling off.
Still, with few homes being listed and prices falling only incrementally, if you find your dream home in the next few months, you should negotiate hard to close the sale. Sellers may want to consider listing now before prices fall further.
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