Higher interest rates result in fewer home sales in the United States, but values remain elevated as a remnant from the market’s explosive peak.
According to the National Association of Realtors, existing house sales dropped by more than one-third in November compared to January 2022. (NAR).
This occurred immediately after the interest rate on a 30-year fixed mortgage, the benchmark lending instrument in US real estate, reached its highest level in 21 years, 7.16 percent, in late October.
The Federal Reserve’s monetary policy shift to combat inflation has resulted in a minor decline in interest rates since then, but they remain substantially above their levels for most of the last decade and a half.
David Schlichter, a real estate representative for Compass in Colorado, described the peak pandemic of the recent past as “the hottest market in history.” “The market has certainly shifted in Denver,” he added.
Schlichter noted that the properties on the market today remain on the market longer and “sell for a price below the asking price.”
Drake, a homebuyer who declined to provide his last name, anticipates closing on a house in Austin, Texas for four percent less than the asking price.
“Now is the best time to buy in the last one and a half to two years if you have a reasonably secure job and a substantial down payment,” he told AFP.
According to industry insiders, despite these exceptions, real estate prices have remained relatively high due to the restricted supply of accessible residences.
According to the NAR, the median sales price in November was $370,700, down 11 percent from the peak in June.
However, this is still a 3.5 percent increase from the same period last year and a 30 percent increase from May 2020, when the epidemic ignited the market.
In light of the deteriorating economy, CoreLogic predicts that prices will decrease by 2.8% between November 2022 and November 2023.
But nothing like to the 2008 subprime crisis is anticipated. The Great Recession caused a 27 percent decline in housing values from June 2008 to January 2012.
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Since that time, lending practices in the US home market have altered dramatically.
In 2006, roughly 35 percent of mortgages were adjustable-rate, meaning that the loan fees increased when the Federal Reserve raised interest rates.
Today, just around 10 percent of mortgages are structured this way, protecting the majority of legacy mortgages from the Fed’s move away from near-zero interest rates.
The restricted quantity of available dwelling stock is an additional significant contrast with that era.
According to Lawrence Yun, NAR’s chief economist, real estate firms overbuilt during the previous housing boom in the first decade of the 21st century.
Yun stated that homebuilders have underproduced over the past decade. Therefore, if there is another moderate recession, I do not anticipate inventory increases to be all that significant.
First-time buyers are burdened by the exorbitant property prices caused by the scarcity of available properties for sale.
“Affordability of housing is certainly a concern,” added Yun. “Many young people who want to become owners lack the financial means to do so.”
Housing insiders said the impact to home prices from the Fed’s dramatic policy change has been less pronounced than expected.
“Our inventory is still very low, which is keeping prices up,” said Richard Stanton of Stanton Company Realtors in Montclair, New Jersey.
“I would’ve thought interest rates would’ve had a more pronounced effect, but we’re really not seeing that right now.”
Levi Lascsak of real estate agency Living in Dallas said the dynamics are still more of a seller’s market, but one that is more balanced compared with a year ago.
“We’re still seeing in the Dallas market, sometimes two or three or four offers on a home,” he said. “But last year, we were experiencing, on average, like 25 to 30 offers.”
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