If the U.S. residential housing market were a vehicle, it would be stuck in park right now. And while some opportunities may be coming that would allow investors to shift back into drive, the overriding consensus is to keep the car in the driveway for now.
Home prices are too high to appeal to buyers facing skyrocketing mortgage rates. But sellers are hesitating to lower asking prices as the year ends. And just like last summer, buyers are also walking away as interest rates continue to be high, though they’ve dropped some in the past few weeks to under 7%. According to Redfin Corp. RDFN, which has its own issues after recent layoffs and the closing of its home-flipping business, around 64,000 home-purchase agreements fell through in August, representing more than 15% of homes under contract that month.
In addition, mortgage loan application volume decreased by 0.8% last week compared with the previous week, according to the Mortgage Bankers Association’s index.
The good news-bad news scenario is that home prices are predicted to come down in 2023, which is good news for homebuyers and investors but not so much for home and property owners. According to the National Association of Realtors (NAR), existing home sales have fallen for nine months, and an inventory-depleted summer market is now rebounding, though with fewer buyers. Yesterday NAR reported pending October home sales declined for the fifth consecutive month.
Kieran Clancy, a senior U.S. economist at Pantheon Macroeconomics, says the “collapse in prices is coming.” Pantheon, an economic research consultancy, estimates that existing home prices will keep falling, ultimately dropping by about 20% from a June 2022 peak of around $414,000.
Joining the pessimistic forecast is Goldman Sachs, which has cut its outlook for home prices from flat to down 4%. Goldman pointed to an "unsustainable level of housing affordability to continue weighing on housing demand” as the reasoning behind its moves.
While many alarmists point to the housing crisis of 2008 as a potential comparison, most don’t see a housing bust in the forecast because of low unemployment and affordable low-interest loans for those who purchased in recent years. Those factors point to the reality that most homeowners can make their payments, though conditions are making it less likely they’ll be able to find buyers.
That sentiment is bolstered by a University of Michigan study released this month, which found that 83% of consumers say it’s a bad time to buy a house.
“It’s primarily on the basis of high prices, but recently, on top of the high prices, consumers are not feeling very good about rising interest rates,” said Joanne Hsu, who directs surveys of consumers at the University of Michigan.
That survey sentiment was echoed by Realtor.com Chief Economist Danielle Hale, who told The Atlantic, “It never feels like a great time to buy a house. You’re committing yourself to paying this enormous mortgage over a really long period of time.” She added that something that is always “a little bit scary” is “particularly scary” right now.
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