(Bloomberg) — The U.S. housing market — long crippled by drying up inventory — is finally starting to see listings rise. But now, in many places, buyers are not coming.
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Sellers are grappling with the fact that higher interest rates for a longer period stifle demand during what is typically considered the market’s prime season. More of those owners are lowering asking prices than at any time since November 2022 as inventory builds, according to Redfin Corp.
“With mortgage rates once again rising above 7%, homebuyers’ willingness to take a stab this season has waned,” said Ralph McLaughlin, chief economist at Realtor.com. “You can have high rates or you can have high mortgage interest rates, but you can’t have both for a long time.”
Entering this year, the prospect of interest rate cuts by the Federal Reserve sparked some optimism about a housing market that had just emerged from its worst year for previously owned home sales in nearly three decades. But the economy has continued to boom, dampening hopes of lowering interest rates any time soon.
“Without interest rate cuts, a cold reality is settling in for the housing market,” said Robert Frick, corporate economist at Marine Federal Credit Union.
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Buyers receive little, if any, relief from higher borrowing costs. The average interest rate on a 30-year mortgage has hovered near 7% since mid-April. Prices continued to rise. In the four weeks ending May 26, the average sale price rose 4.3% from a year earlier to a record high of $390,613, according to Redfin.
House hunters of all kinds are being pushed out of the market. New home sales — a bright spot for an inventory-constrained market — fell in April. Existing home contracts fell that month to their lowest level in four years. The decline is causing listings to pile up instead of matching them with buyers, according to Realtor.com’s McLaughlin.
The spring sales season so far has been “certainly disappointing,” said Lawrence Yun, chief economist for the National Association of Realtors. “At the beginning of the year, I thought sales would increase throughout the year.”
Across the country
While sales are lower on average in the United States, geography matters. Sun Belt markets, including Florida and Texas, that boomed with an influx of new arrivals during the pandemic, are now seeing a slowdown in part due to people being priced out, according to Redfin. Meanwhile, metros in the West like Seattle and the San Francisco Bay Area saw sharper corrections in late 2022 and are already starting to recover.
Contract signings fell by at least 14% in Houston, West Palm Beach, Florida, and Atlanta, but rose by about the same amount in San Jose, California, according to annual data from Redfin for the four weeks through May 26. The pending sales measure fell 3.4% nationwide.
Eighteen months ago, homes in the booming suburbs north of Nashville wouldn’t have been on the market for a day, said Don Hackford, a real estate agent in Hendersonville, Tennessee. Nowadays, a developer client recently pulled two homes from the market after getting some low offers.
“Everything is kind of stagnant, which is frustrating for Realtors, because it’s like we’re being shut out,” Hackford said. “no job.”
Along Florida’s southwest coast, a booming region hit hard by rising home insurance rates, the number of active single-family home listings in the Punta Gorda area has doubled to 2,143 over the past year. Meanwhile, the median sales price of a single-family home fell about $30,000 to $351,000 in April compared to a year ago, said Leanne Walker, a local broker and chief broker of Punta Gorda-Port Charlotte-North Port-DeSoto.
“It’s gotten too flat,” Walker said. “It’s become very much a buyer’s market. There’s a lot of price cuts happening.”
Price growth may slow more broadly in the coming months, said Chen Zhao, an economist at Redfin. But any slowdown is likely to be slow, given pent-up demand from millennials that is likely to continue to support the market.
“The consensus expectation was that interest rates have eased now, leading to more demand and supply and higher transaction volume,” Redfin’s Zhao said. “But instead we continue to hover around the bottom we reached about 18 months ago.”
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