Record home price gains and coast-to-coast bidding wars are rapidly becoming past tense.
Pandemic Housing Boom Reaches Limit
Hot housing markets such as Austin TX and Riverside CA are slowing primarily due to the quickest rise in mortgage rates for any four-month period since 1981.
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Potential homebuyers actually have time to shop for a house, and even negotiate for it, rather than having to make immediate offers. Fewer buyers are facing bidding wars. Plus, more and more sellers are doing something unimaginable just months ago…sellers are slashing their listing prices.
Housing’s Decade-Long Bull Run May Be Ending
In response to inflation surging to levels not seen in four decades, the Federal Reserve has done an abrupt about-face to historically low interest rates and instituted quick paced interest rate hikes to cool demand.
The Fed’s strategy of raising interest rates combined with numbing growth in home prices, teetering financial markets and fears of recession are clearly taking a toll on both existing and new home sales. Demand is cooling, particularly in Sun Belt housing markets.
Mark Zandi, chief economist with Moody’s Analytics, said, “Mortgage rates have quickly gone from being a massive tailwind to the housing market to a massive headwind. The higher rates are conflating with the extraordinarily high house prices and crushing affordability.”
Zandi anticipates that prices will flatten over the next 18 – 24 months along with potential price declines in the South and West.
High-Flying Markets Not Crashing…Just Slowing
The housing market in Austin TX, one of the hottest of hot housing markets where the median listing price of a home jumped +28% y/y in April, recorded the biggest increase in the share of listing price reductions (9.4%) among the top 50 US metro areas, according to Realtor.com.
Sonia Guardado, a real estate agent in the Austin suburb of Round Rock, said, “The month before (in March), it was hot, hot, hot, with lines out the door, and now we can’t even get buyers in.”
Price cuts are also becoming more and more common in areas such as Las Vegas, Phoenix, Atlanta and parts of California such as Riverside, according to Realtor.com. Inventory in Riverside jumped +23% in April y/y, the biggest inventory spike in the country.
Buyers remain stretched with persistently high home prices and too tight inventory BUT industry experts such as George Ratiu, senior economist with Realtor.com, anticipates that annual national home price growth will likely slow from more than the current +15% to about +5% by the end of 2022.
Ratiu said, “One silver lining for housing: A softening in prices could…present an opportunity for a lot of buyers.”
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Thanks to Bloomberg.
