Looks like the US home buying spree is ending. There is a change in mood visible both in the official data and in the anecdotes of sellers, buyers and brokers.
Why is this important: This is exactly what Jerome Powell ordered. The slowdown means the Fed’s rate hikes are working, cooling demand in an overheated market.
“Buyers just stopped buying,” said Shauna Pendleton, agent at Redfin in Boise, Idaho, until recently one of the hottest markets in the country. “Californication,” as she called it, brought an influx of West Coast shoppers, full of cash thanks to the equally booming stock market.
- Some lists now go for weeks without even being presented, she said; like that 4 bedrooms priced at $899,000; 42 days without a peek.
- In the Dallas/Ft. Worth, Redfin agent Robin Glaysher said five people showed up at an open house last weekend; previously there would have been a line out the door.
- “It’s a completely different market now,” said Glaysher, who works with homes priced around $400,000.
- The change is a boon for some buyers — like those who rely on FHA loans that only require a 3.5% down payment, she said. They used to be often outbid by cash buyers, which has now disappeared.
Driving the news: New home sales plunged in April, falling 16.6% from March to 591,000, well below economists’ forecast of 750,000, data showed Tuesday. It’s the slowest pace since April 2020 – when the economy froze for a minute before the boom started.
- Sales of existing homes – perhaps a better measure of the US market since it is a much larger segment – are also downward trenddown for three consecutive months, according to the National Association of Realtors.
- Mortgage rates have soared since March and with 30-years now hovering around 5.25%, the highest in years.
- Meanwhile, a new supply of housing is being built. The available inventory of unsold new single-family homes jumped 8% in April to 444,000, a 13-year high.
Catch up fast: The real estate market has been, technically speaking, bananas since COVID, as the rise of remote work — and rock-bottom mortgage rates — has caused more people to look to upgrade their living space.
- The surge in demand has fueled bidding wars and all sorts of wild activity – buyers forgoing inspections or begging sellers to pick them, for example.
- Now, “buyers are less accommodating, down to giving what we want on the sell side,” said Glaysher, the Texas agent.
What they say : “The party is over,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a research note on Tuesday.
- “We were going 90 miles per hour on the freeway and we eased off the accelerator,” Michael Simonsen, CEO of Altos, a real estate analytics firm, told Axios.
- “The market has gone from ‘irrational to more rational,’ Jonathan Miller, a New York-based real estate appraiser, told Axios in an email. What used to sell in 24 hours could now take around a month.
Yes, but: This is not 2008. House prices have not started to drop. The median price of new homes in the United States rose in April to $450,600, a 45% increase from two years ago.
- And although the supply of newly built homes has increased, this is actually only a small part of the overall market. Existing home inventories are still some of the lowest everfrom April.
The bottom line: Although the frenzy is over, “there is still a lot of pent-up demand from people who have been shopping for a year,” Simonsen said.