Hello, entrepreneurs and investors! Today, we’ll be pulling back the curtain on the real estate market which seems to be hitting a new low, as an unprecedented inventory shortage throttles the annual spring homebuying frenzy. This situation is largely attributed to soaring mortgage rates, creating what could be considered a ‘housing ice age’.
Recent data from Redfin paints a stark picture. Active home listings last month took a year-over-year plunge of 7.1%, slumping to a meagre 1.4 million. If you’re having a hard time picturing that, think of it this way – it’s the smallest number of available homes ever recorded by Redfin since they started keeping tabs in 2012.
Meanwhile, the number of new listings has not been keeping pace either, plummeting 25% year over year to just 465,000 last month, the third-lowest number that Redfin has on record.
So, what’s putting the brakes on the housing market? The villain of the piece seems to be high mortgage rates. With the average rate for the 30-year fixed mortgage skirting a 20-year record at a dizzying 6.35%, homeowners who had originally financed their homes at the ultra-low interest rates of yesteryears are balking at the idea of listing their properties.
The fallout is a housing market that’s largely paralyzed, with a pinch of supply sending prices rocketing and slowing down sales activity. To throw some numbers your way – a staggering 38% of properties last month were sold above their listing price, according to Redfin. Meanwhile, pending home sales fell by a sobering 16%, indicating that the traditional spring homebuying rush has been derailed by these prohibitive mortgage rates.
“Two possible defibrillators could kickstart the housing market right now – a significant dip in mortgage rates and/or a major influx of new listings. But neither of those happened this spring,” said Taylor Marr, Deputy Chief Economist at Redfin. “Instead, we saw rates escalate and new listings dive to record lows. With one or two more interest-rate hikes expected this year, mortgage rates are likely to remain high at least through the summer, stymieing both demand and supply.”
Marr doesn’t paint a rosy picture for affordability and homebuying activity either. He foresees a bounce back only when mortgage rates take a substantial dive. However, that appears unlikely to happen anytime soon. His prediction? Mortgage rates will ease only slightly, settling at around 6% by the end of the year.
As the real estate market navigates these choppy waters, it’s essential for prospective homeowners and real estate investors to stay informed and be prepared for a potentially long-lasting ‘winter’ in the housing market. Happy investing, everyone!