Fewer Homes, for 50% More Money: An Honest Look at Homebuyers’ New Reality
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If you’re the type of homebuyer whose mood soars or plummets depending on the latest mortgage rates, then this week was a tough one.

Mortgage rates continued to climb this week, with the 30-year loan averaging 6.73%, Freddie Macreports. Rates began climbing more than a month ago and are now prompting concerns that they could again head back above 7%. This means today’s homebuyers will have to pay almost 50% more per month for home than they would have just a year earlier.

Still, economists are largely forecasting rates to trend downward in 2023, even if there are some blips ahead.

For now, “rates may rise further in subsequent weeks, depending on how strong other economic data is,” says Nadia Evangelou, senior economist and director of real estate research at the National Association of REALTORS®. “Jobs and inflation reports, coming soon, are two of the main drivers of today’s mortgage market.”

This steep hike in housing costs might hurt the rebound that had been emerging in the housing market, when rates were lower earlier this year.

“Recent signs of a housing bottom have been encouraging, but the still-shifting financial and economic landscape makes it hard to pinpoint whether the floor is firm enough to withstand these new challenges,” says Realtor.com® Chief Economist Danielle Hale in her most recent analysis. “In the meanwhile, that means housing activity is likely to continue roughly in line with its recent low pace of sales.”

As for what happens next, mortgage rates “will likely play a strong role in determining whether the market slows further or picks up speed,” says Hale. “While the housing market had shown some signs of stabilizing, a renewed climb in mortgage rates could undermine the recovery.”

And while no one knows for sure which direction interest rates will head next, stubborn inflation might force the Fed to continue bludgeoning the economy with rate hikes, which could mean mortgage rates may rise further.

How home prices react to high mortgage rates

Seattle among cities likely to see big slump in housing prices.

Some of the biggest cities in the U.S. that became boom towns during the pandemic are set to see a drastic decline in home prices, according to Goldman Sachs analysts.

In a recent note to clients, the strategists warned that by the end of 2024, home prices are set to plunge by 19% in Austin, 16% in Phoenix, 15% in San Francisco and 12% in Seattle. That's because those four cities have seen large increases in inventory, and supply is now overwhelming demand.

In the city of Sammamish where I live, home prices decreased by 7.9%, compared with where they were a year earlier—This is a huge change since the bidding wars fueled by the COVID-19 pandemic, when almost every listing received multiple offers and bidding wars. In fact the percentage (%) of list price to sales price over the past year has fallen by more than 20%  going from 119% of asking price a year ago to now only around 97% of asking price.

What’s behind the drop in average home price? Believe it or not, sellers have finally gotten the memo that buyers need lower prices to offset those higher interest rates they’re paying today. Despite many sellers sitting out the current market, the ones who are trying to find a buyer seem to be finally “calibrating their price expectations,” according to Hale. As a result, price growth is easing.

When mortgage rates were low but inching up in June 2022, buyers made a last dash to buy a home, which drove up home prices to a record high of $2,203,000 in the city of Sammamish. But by February 2023, as mortgage rates were ping ponging between 6% and 7%, listings in Sammamish settled toward a median asking price of $1,787,000.

And although listings took 43 more days to sell—for the week ending March 10th—than a year earlier, the pace is picking up a bit. We are seeing properly priced homes still sell in just a week or two. The important thing for sellers is to understand the market and the fact that prices aren’t going up. It’s better to price properly now and sell relatively quickly than to sit and have to do multiple price drops adjusting to a falling market.

Home inventory continues to stagnate.

While high mortgage rates aren’t stopping certain buyers, home sellers seem to be more reluctant to jump in.

While overall inventory is below historical norms which would typically favor sellers, high interest rates and uncertainty in the economy have put a damper on buyers.  Overall home inventory (of both new and old listings) continues to balloon—up 533% from last year at this time when we had historical low inventory and historically low rates fueling the bidding war phenomenon. One year ago, Sammamish only had 6 homes for sale on average in February. In 2023 we averaged 38.  

This rise in the number of unsold homes on the market might seem shocking, until the figure is considered in a larger context that factors in our pre-pandemic days.

“It’s important to remember that this year-over-year comparison is relative to early 2022, when active listings were at or near long-term lows,” explains Hale. “So even after this huge year-over-year gain, February data shows that nationwide, there are only just more than half as many homes for sale as were available pre-pandemic.”

Fewer homes, for 50% more money? It’s no wonder buyers are hurting. Here’s hoping spring brings better news.

“Attention Sellers HERE!”

If you are considering selling NOW is the time!

Posted by Cary W Porter on


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