US Housing Market Poised for a Comeback
The housing market in the US has been experiencing a chill for a few years now, mainly due to the surge in mortgage rates. However, there's a hint of recovery on the horizon, as evidenced by a 2% increase in the sale of pre-existing homes in a recent month.
Current Pace of Home Sales
Given the current rate, it is projected that around four million pre-existing homes will be sold this year. This figure is considerably lower than during the health crisis and notably lower than the pre-crisis period.
Signs of Improvement
Despite this, there are a few glimmers of hope. A significant increase in the number of homes on the market is one such positive sign. The existing home inventory is currently at its highest point since the 2020 lockdown period, almost five years ago. During a recent month, there were 1.55 million homes listed for sale, marking a nearly 16% increase compared to a year prior.
Good News for Buyers
This surge in inventory could be a boon for potential homeowners as it offers them a wider selection and more bargaining power. However, it isn't as positive for sellers since homes are now taking longer to sell—an average of 28 days compared to 24 days in the same month five years ago.
Softening Prices
Moreover, many markets are witnessing a decline in prices. In fact, a recent study found that prices dropped in 33 of the 50 biggest metro areas. Another set of data showed price drops in the South and West, and a recent analysis revealed that home prices are increasing at their slowest pace in two years. Nevertheless, nationwide, prices did experience a slight increase, with a median price of $422,400.
High Prices and More Listings
High prices and mortgage rates have led to a slower market. But an increase in listings could be a silver lining. Current rates for a 30-year mortgage average around 6.6%, and home prices have seen an almost 50% increase since before the health crisis. As a result, many people who wish to buy a home find it unaffordable. However, even a small reduction in mortgage rates can stimulate the market slightly.
Future of Mortgage Rates
Some experts predict that rates will hover around the 6.6% range for the remainder of the year. While a forthcoming Federal Reserve Board meeting might lead to a cut in interest rates, concerns about the country's debt and deficit are keeping rates high. Furthermore, expectations of a possible rate cut might already be influencing current mortgage rates, which means an actual cut might not significantly lower mortgage rates.
Hope for the Future
Despite this, there could be a change in the coming year. Experts predict that rates could fall to the 6.5% range, with occasional dips below that. Lower rates could encourage potential buyers to act, as long as prices don't surge.
Lock-in Effect Easing
During the health crisis, many homeowners were able to buy or refinance at extremely low mortgage rates in the 3% range. These low rates have encouraged them to stay put as moving would mean taking on a higher-priced loan. This has resulted in many households being "locked-in" their current homes, unable to upgrade or downgrade as needed. However, the rising inventory level is a sign that some people are starting to move and give up these low rates.
New Home Construction
Recent data from the Census Bureau shows that housing starts in a recent month were up 5% compared to the previous month. However, building permits were down nearly 3% compared to the month before. This reduction in homebuilding is attributed to affordability problems for buyers, a lack of skilled labor, and high regulatory costs.