The real estate market is slowing down, but that doesn’t mean that house prices are becoming more affordable. In fact, prices and rents continue to rise.
Why is this important: Maybe you thought the real estate market was all about location, location, location. Well, it’s also about sourcing, sourcing, sourcing. The United States does not have enough homes to meet demand – even now, as fewer people want to buy in the face of rising mortgage rates.
- “The affordable housing problem is going to persist no matter what,” says Redfin chief economist Daryl Fairweather.
- This is yet another sign of the Fed’s difficulty in curbing rising inflation.
Driving the news: New data from the National Association of Realtors showed that the spring selling season is slow this year, with May sales down 8.6% from a year ago.
- At the same time, the median price of an existing home crossed the $400,000 mark for the first time.
- The number of sales fell as buyers were spooked by mortgage rates hovering around 6%. And potential sellers have no incentive to move — most are sitting on rock-bottom mortgage rates marked during the pandemic refi boom.
Meanwhile, rents are skyrocketing. New rents for single-family homes (which make up half of the residential market) rose 14% in May from a year ago, according to CoreLogic, a real estate analytics firm.
- In Miami, rents have increased by 41% compared to last year!
- Another rental report released Wednesday, by Realtor.com, shows median rents are up 26.6% from before the pandemic — but a slower rate of increase in recent months.
- Rising mortgage rates could actually put more pressure on the rental market: as first-time buyers put off a new purchase, they will continue to rely on renting.
Between the lines: In a healthy housing market, there should be a four to six month supply of homes for sale; this is the time it would take to sell all the inventory.
- Right now we are at a 2.6 month supply, according to the NAR report. Still weak, but actually a 33% increase since February, notes Ian Shepherdson, chief economist at Pantheon Macroeconomics.
- Shepherdson is one of the few housing market watchers to bet on falling house prices, rather than just stabilizing. In his research note, he explains that after calculating seasonal adjustments, single-family home prices actually fell slightly in May.
- The market is “dark and soon will be,” he wrote.
Zoom out: Partly because of the role real estate played in the financial crisis, many people now view housing as a barometer of the overall economy. But we’re in a whole different ballgame from 2007 – homeowners are sitting on record levels of equity and cheap mortgages.
What to watch: There is a lot of talk about the risk of recession, and a slowdown would certainly have an impact on the housing market. A rise in unemployment could lead to an uptick in loan distress — but not to the levels we saw back then, thanks to those equity cushions and stronger mortgage underwriting, says Molly Boesel, senior economist at CoreLogic.