After the residential real estate market boomed in the first 18 months of the covid pandemic, it has now sagged. Home prices and mortgage rates have soared, depressing demand and sending sales down.
On the price front, the median existing-home sale price hit $416,000 in June, jumping 13.4% from a year earlier, according to the National Association of Realtors. June’s figure marked 124 straight months of increases compared with a year earlier, the longest streak on record.
As for mortgage rates the 30-year fixed-mortgage rate averaged 4.99% for the week ended Aug. 4. That’s up from 2.77% a year ago, though down from 5.3% a week earlier, according to Freddie Mac.
“Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
“The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment.”
Home Sales Slip
As for sales, existing-home sales fell in June to a two-year low, according to the NAR. Sales slid 5.4% from May and were down 14.2% from June 2021. June was the fifth straight month of decline.
“Purchase demand continues to tumble as the cumulative impact of higher rates, elevated home prices, increased recession risk, and declining consumer confidence take a toll on home buyers,” Khater said in a statement.
Looking at the future, the online real estate brokerage Zillow (Z) – Get Zillow Group Inc. Report foresees some weakness in the third quarter. It expects revenue from its platform serving real estate agents (Premier Agent) to drop 21% from a year earlier.
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A number of trends are making it more difficult for customers to get business, Zillow said in a letter to shareholders.
· “Lower home-purchase demand driven by recent increases in interest rates, which has made home purchases less affordable.
· “The recent double-digit percentage annual decline in … mortgage applications.
· “Lower home-price appreciation driven by softening demand, and inventory levels that are growing but still lower than before the pandemic.”
Bottom line: “Although demand indicators stabilized in July compared to June, we expect second-half 2022 total industry transaction dollar volume to meaningfully contract year over year,” Zillow said.
So the outlook isn’t pretty. If the Federal Reserve keeps raising short-term interest rates, long-term rates may resume their ascent, pushing mortgage rates higher.
And if long-term rates don’t rebound, that could mean that the economy is headed for a recession. An economic downturn would, of course, be damaging for the housing market, sending demand down.
If you’re looking to buy a home, you may want to wait until market conditions improve. But that could take a year or two, and in the meantime, rents are rising steeply. So to some extent, you’re damned if you do, and damned if you don’t.