The Housing Market’s Strange Summer Slump
As the mercury rises, will the housing market heat up—or continue to slump?
The story of the housing market over the past year or so has been how rising mortgage interest rates have affected affordability, pricing out would-be homebuyers. However, higher rates have led to an even larger problem: a worsening shortage of homes for sale. Here are some reasons why:
Homeowners have been reluctant to trade up or down, or relocate and give up their record-low mortgage rates. That’s left inventory low and buyers with very little to buy
The problem for buyers is that mortgage rates are high, home prices are high, and there’s no inventory, (or let’s say very little inventory in desired price ranges in our Somerset and Morris County areas.)
It’s not exactly smooth sailing for sellers either. While they’re still in the driver’s seat thanks to the worsening housing shortage, they’re unable to command the high prices of just a year ago. Buyers simply can’t afford to offer as much now that higher rates have resulted in substantially larger mortgage payments due each month. Of course, in our Somerset Hills area, there are many buyers who are making all-cash deals, but this doesn’t pertain to everybody.
In other words, buyers are struggling to afford purchasing a home, if they can even find one that meets their needs. Homeowners who would like to trade up or down or relocate are halted. And sellers can no longer name their price. So, the housing market has stalled.
Problem No. 1: There aren’t enough homes for sale
In this summer housing market there simply aren’t enough homes for sale.
The number of new listings is down 25.7% from June 2022 and down 28.8% from June 2019, according to Realtor.com® data. And while there are technically more homes for sale than there were a year ago, this is because some properties just are not selling.
These are the fixer-uppers, the oddly configured homes, the ones lacking curb appeal, the homes with unrealistically high price tags, and the properties that aren’t ideally located. These homes were selling during the COVID-19 pandemic when folks were desperate. But now that housing costs so much, buyers are much less willing to compromise on a home that may or may not have potential.
Anything appealing and move-in ready in a desirable area that’s priced to move is still selling very quickly.
Existing homeowners have been reluctant to give up their low mortgage rates. They are staying put unless they have a compelling reason to move. And this is causing the bulk of the problem, especially in our area.
The challenge facing many homebuyers this summer is more about limited choices than affordability. The very limited supply of housing is the bigger roadblock.
In a typical year, there would be about 5.5 million existing home sales (which don’t include new construction). A good year could be north of 6 million sales. But there are expected to be only about 4.2 million home sales nationwide this year, according to Realtor.com experts.
Problem No. 2: Mortgage rates remain high
Higher mortgage rates have been a primary issue behind the slowdown in the housing market.
The U.S. Federal Reserve wasn’t a fan of the big run-up in home prices during the pandemic. It began raising its own interest rates in an effort to tame inflation and cool the housing market. Mortgage rates followed a similar upward trajectory, supersizing monthly payments.
The result: The typical mortgage payment was 9% larger in June than it was in June 2019 and 9% more than in June 2022, according to a Realtor.com analysis.
Those higher mortgage rates have chilled the housing market. Scores of prospective homebuyers have been priced out, turning the American dream of homeownership into just that, nothing more than a dream for many would-be, first-time homebuyers. And rates are expected to remain high.
Economists anticipate mortgage rates will stay in the mid-to-high 6-7% range until the Fed cuts its rates. And unfortunately for buyers, Fed officials have said they expect another rate hike or two by the end of this year.
It’s possible we could see mortgage rates tick back up a little bit. [But] not go back up above 7%. (hopefully!)
Problem No. 3: Prices are falling a bit—but not enough to jump-start the market
This summer, home prices will likely continue to fall a little as buyers hit their financial limits.
In June, list prices fell nationally for the first time in years, dipping 0.9% from last June’s record high. That’s not enough to give most homebuyers any meaningful relief as mortgage rates remain high. And in addition, our local Somerset Hills area has not really experienced this slight drop.
And that is because those price declines aren’t universal. They are still rising in the Midwestern and Northeastern markets.
“Real estate is very much more local now than it has been in years”
Exactly how much prices will go down depends on who is asked. Realtor.com expects prices will be 0.6% lower this year than last. Moody’s Analytics expects home prices will continue to drop, falling 8% from their peaks last year. Meanwhile, some economists believe prices will stabilize.
If you are looking for an accurate evaluation in your particular neighborhood (after all, all real estate is local!) call me. I can bring you up to date with actual facts and comparisons.
The lack of homes for sale, though, is likely to keep the market competitive. Buyers who have their heart set on a property will likely have to compete for it. And they might have to offer more than the list price to win the bidding war.
Existing homes in our area receive multiple offers each, with the “vast majority” going under contract in less than two weeks.
“I wouldn’t be surprised to see a modest amount of home buying and selling continuing this summer, though. The overarching theme of the summer is cautious optimism.