February 14, 2025
The housing market is stuck: mortgage rates, inventory explained

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  • Low inventory, high mortgage rates and high prices have created a tough housing market.
  • Homeowners have seen an increase in equity, but home seekers are finding it difficult to enter the market.
  • There has been a 45% decline in purchases by real estate investors in the second quarter as compared to last year.

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It’s a tough time to get moving in the US housing market.

Low inventory, high mortgage rates and high prices have driven the housing market into a state of disrepair, affecting home seekers, current homeowners and even real estate investors.

The Federal Reserve’s aggressive interest rate hikes over the past 18 months have pushed mortgage rates to a two-decade high, but so far home prices haven’t fallen as they typically do when rates rise.

Throw in distorted supply and demand dynamics and economists see little reason to expect affordability to ease. Current landlords are reluctant to move and risk giving up the low rates they previously secured, and this keeps homes off the market and leaves buyers with fewer options.

As things stand, nearly one-quarter of homeowners are sitting on mortgage rates of less than 3%, which is close to the highest on record.

high house prices

The Case-Shiller US National Composite Home Price Index showed that home prices rose for the fifth month in a row in June, and is now only 0.02% below the index’s all-time high last summer. Seasonally adjusted data showed prices rose in every single city in the group’s 20-city index.

S&P DJI Managing Director Craig J. “As we’ve seen before, the correction in home prices has been broadly based,” Lazzara said. “Over the past 12 months, 10 cities have shown positive returns. Put another way, half the cities in our sample are now at all-time high prices.”

A recent Redfin survey found that young adults in particular are facing adversity. Thirty-eight percent of buyers under the age of 30 in a survey said they had to depend on family for upfront payments in the form of cash or inheritance. The stat prompted Daryl Fairweather, chief economist at Redfin, to label the group as “nepo-homebuyers”.

To that point, Americans are competing with the most expensive starter homes ever. The median sale price of typical starter homes reached an all-time high of $243,000 in June.

Rising prices are making it difficult for even those who have tighter pockets. A separate report from Redfin found that real estate investors bought 45% fewer homes in the second quarter than a year earlier.

This overtook an overall decline of 31% in home sales, and marked the biggest decline since 2008, excluding the first quarter of this year.

Annual growth in home purchases by investors. redfin

Las Vegas Redfin agent Shay Stein said, “Offers from hedge funds have poured in; I haven’t received any offers from anyone in a long time, except for unrealistically low offers.” “When interest rates started rising in the mid-2020s to early 2022, hedge funds bought a ton of properties and quickly converted them to rentals, pricing them up for local buyers. Now a large proportion of our homes are owned by investors , but they’re not adding anything to their portfolio.”

no relief in sight

Zillow’s latest forecast says home prices could rise another 6.5% through July 2024, and data from Realtor.com shows total home listings declined for the fourth month in a row in August, showing That the high prices will remain.

The report also showed that home sellers were less active in August, with 7.5% fewer newly listed homes than in the same period last year. Inventory in the largest 50 metros remains 45% below pre-pandemic levels, Realtor.com said.

Meanwhile, the latest mortgage delinquency data also suggests that a broader price decline is not on the horizon. Fannie Mae reported that serious delinquencies declined to 0.54% in July from 0.55% in June — the lowest rate since before the 2008 housing crisis and well below the pre-pandemic low of 0.60%.

“Since lending standards are solid and most homeowners have sufficient equity, there won’t be a major wave of single-family foreclosures this cycle,” veteran real estate commentator Bill McBride wrote in an August 28 note. “This means that we will not see a massive drop in prices after the housing bubble.”

Source: markets.businessinsider.com

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