NASHVILLE, Tenn. — High mortgage rates and recession fears are hurting home prices, so expect growth to be flat this year, one expert says.
“Our forecast is for home-price growth moderation to continue,” Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association, said Sunday during the organization’s annual conference in Nashville, Tenn.
Home prices have already begun moderating. According to Case-Shiller, home prices fell month-over-month from June to July for the first time in 20 years. The latest numbers, which will be for August, will be reported on Tuesday morning.
With a recession likely in the cards, on top of mortgage rates near or above 7%, “we’ve already seen a pretty dramatic pullback in housing demand,” Kan said.
Also see: Mortgage industry group predicts recession next year, expects mortgage rates to come back down from 7%
The 30-year fixed rate averaged 6.94% last week as compared to 3.85% a year ago. The MBA is also expecting rates to come down to 5.4% by the end of next year.
So expect national home-price growth to “flatten out” in 2023 and 2024, he said. This might be a “silver lining” for some, Kan added, as it brings home prices back to more “reasonable levels.”
A flattening of home-price growth should allow households to catch up, in terms of wages and savings, to afford homes that are presently too expensive.
But he also warned that some markets may actually see home prices drop. We’re already seeing home values fall in some markets, from pandemic boomtowns like Austin and Phoenix to well-known expensive ones the San Francisco Bay Area.
Still, even with price drops, don’t expect a surge of inventory as people sit on their ultra-low mortgage rates that they will likely not enjoy again in the near future.
According to June data from the Federal Housing Finance Agency, nearly a quarter of homeowners have mortgage rates of less than or equal to 3%. And the vast majority of owners — 93% — have rates less than 6%.
On top of that, supply is likely to be tight too.
Sellers are said to be “striking” and not selling their homes as they see others forced to cut list prices to woo buyers. Builders are also getting spooked, signaling intent to slow new construction.
Nonetheless, demand for housing should recover eventually, given that there are a lot of people who will soon be in need of a home that they own.
MBA’s Kan estimated that there are 50 million people in the 28-to-38 age demographic, of which some — or many — are likely to become potential homeowners in the future.
For those under 35, the homeownership rate is only 39%, Kan said, while that share increases for people aged 35 to 44, to 61%.
So as people age, “we’re fairly confident if we stick to these trends, you will see a very supportive demographic driver of housing demand for a good number of years,” Kan said.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com
Here’s a chart that speaks a thousand words about the state of the real-estate market right now.
The chart above, part of a new report by real-estate brokerage Redfin
RDFN,
-7.03%
on the property market, reveals how home sellers are adjusting to the new normal of 7% mortgage rates.
The chart says that 7.9% of homes for sale on the market each week had their prices slashed — and that’s a record high.
That’s compared to just 4% of homes having their prices reduced each week over the same period a year ago.
Redfin’s data goes back to 2015. The company averaged out the share of listings which saw a price cut over four weeks, to smoothen out any outliers.
Taylor Marr, deputy chief economist at Redfin, added that looking over a bigger time period, i.e. a month, the company’s data shows that a quarter of homes right now are dropping prices.
“We have never been this high,” Marr told MarketWatch in an interview.
Unlike buyers, who are much more sensitive to rising mortgage rates, “sellers are just slow to react to the changes in demand… they set prices based on where they think the market is [and] are often reluctant to set their prices too low,” Marr said.
So for sellers, prices are a little stickier, he added, and slower to come down.
But even if it took a while, it’s finally happening.
After all, mortgage rates are at multi-decade highs, with the 30-year trending steadily above 7% as of Friday afternoon, according to Mortgage News Daily. And that’s likely to go up even more, as the 10-year Treasury note
TMUBMUSD10Y,
4.023%,
is trending above 4%.
Meanwhile, Redfin said that the median home on the market was listed at over $367,000, up 7% over last year.
The monthly mortgage for that home at the current interest rate of 6.92%, according to Freddie Mac, is $2,559.
A year ago, when rates were at 3.05%, that monthly payment would’ve been just $1,698.
Two tips for home buyers struggling with high mortgage rates
Sellers are dropping their prices by 4 to 5% on average, Marr said.
“You would almost expect it to be a lot worse,” he added, given how quickly rates rose and eroded buying power.
But buyers and sellers are also using two different tactics to get some relief on mortgage rates, Marr said.
One, sellers are reaching out to buyers and offering concessions to buy mortgage rates down.
In other words, sellers are asking buyers to pay the full asking price, but proposing to use part of that as a concession to get buyers a lower interest rate on their mortgage.
“Which is essentially a price drop,” Marr said, “it’s the same thing … but it doesn’t necessarily show up in the data.” And it’s hard to get a sense of the magnitude of how this is playing out, he added.
How it works is as such, Marr explained: If a buyer is putting down $100,000 for a 20% downpayment on their home at a 6.5% interest rate, they can instead allocate 10% for the downpayment, and spend the rest of the $50,000 buying down the mortgage rate to 5%.
“5% isn’t very bad, and it might seem like a lot of money, but … chances are you’re going to be incentivized to refinance [in the future] and you’ll have to pay the closing cost on that loan to refinance, which could be upwards of 15 grand,” Marr added.
Buyers are also switching to adjustable-rate mortgages, which offer lower interest rates at the start of the term. ARMs are nearly 12% of overall mortgage applications, the Mortgage Bankers Association noted on Wednesday, which is high.
Where prices are falling
As to where prices are falling, a couple of places stood out to Redfin.
They said that home prices fell 3% year-over-year in Oakland, Calif., and 2% in San Francisco. New Orleans also saw a 2% drop.
“Even in Atlanta, or Orlando, we’re seeing buyers backing out,” Marr observed.
So with the backdrop of sellers finally dropping listing prices, if you’re a buyer right now, don’t be spooked by rising rates and stop looking, he advised.
“There have been opportunities when rates really came down and gave buyers the moment to jump back in and get some good deals on homes that did drop their prices,” he said.
Plus, “it doesn’t hurt to make a low ball offer,” Marr added. “Some sellers are desperate, and that can be a good strategy … we’ve heard from some of our own agents that some buyers are getting incredible deals right now.”
But if you need to rent for a year and wait for things to calm down, then do that, Marr said, and bulk up those savings for that dream home.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com
Frustrated by the housing market? Housing experts say they’re expecting the market to tip back into buyers’ court by 2023, according to a new report.
Mortgage rates are approaching 7%, but home prices are only slowly coming back down and inventory is still tight compared to pre-pandemic levels.
Still, the U.S. housing market will shift in favor of home buyers by the end of 2023, 44% of 107 economists and housing experts polled by real-estate company Zillow for its Home Price Expectations Survey said.
And 12% of these experts believed that shift will happen sooner — that is, this year.
Yet roughly 45% of experts surveyed by Zillow say buyers will have to wait, and expect the market to shift in buyers’ favor in 2024, and beyond.
All survey respondents said to expect home-price deceleration in 2023.
“The U.S. housing market will shift in favor of home buyers by the end of 2023. That’s according to 44% of the 107 economists and housing experts surveyed by real-estate company Zillow.”
And we’ve already seen some signs of price pressures manifesting: The median price of an existing home in the U.S. was $389,500 in August, down from $403,800 the previous month, the National Association of Realtors said.
Most of the housing experts surveyed by Zillow noted that the markets most likely to see home prices decline over the next year include pandemic boomtowns like Boise, Austin, and Raleigh; 77% of the experts surveyed expect declines in those cities. They saw a huge jump in sales amid the earliest days of the coronavirus pandemic.
Redfin, another real-estate brokerage company, also noted that Sun Belt home buyers are cancelling their home-purchase agreements at the highest rate as compared to the rest of the nation.
“Most of the housing experts surveyed by Zillow noted that the markets most likely to see home prices decline over the next year include pandemic boomtowns like Boise, Austin, and Raleigh.”
The markets least likely to see home prices decline over the next year include Midwestern cities like Columbus, Indianapolis, and Minneapolis, Zillow said. Only 36% of respondents expected home prices to decline in these areas over the next 12 months.
Some markets in the south are also expected to see demand hold strong, including Atlanta, Nashville, and Charlotte, the respondents added. Only 44% said declines in home prices were likely.
But for all potential buyers stuck renting as either mortgage rates or home prices makes buying a home unaffordable right now, expect rent growth to continue, Zillow said.
Zillow also expects rent growth to outpace inflation, stocks, and home values, over the next 12 months.
The typical home buyer’s monthly mortgage payment for a home priced at the median asking price has climbed $337 to $2,547 in the past six weeks alone, Redfin noted — a 15% jump.
That’s also up 50% from a year ago, when rates were at 3.01%.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com
The tide has turned, and buyers are now backing out of deals in the Sun Belt as rates rise and home prices remain unaffordable.
Once pandemic boomtowns, 15.2% of homes in cities in the Sun Belt that went under contract in August fell through, or roughly 64,000 homes nationwide saw deals dropped, a new report from real-estate brokerage Redfin Corp.
RDFN,
-5.33%
said.
A year ago, only 12.1% of home buyers were backing out of deals. Typically 12% of deals fell through prior to the pandemic, Redfin said. But the last time this number spiked — prior to this fall — was at the onset of the coronavirus pandemic in March/April 2020.
Buyers were most likely to back out of deals in the Sun Belt, the company added, in cities such as Phoenix, Tampa, and Las Vegas. Buyers were least likely to back out of purchases in big cities, including San Francisco and New York.
“A slowing housing market is allowing buyers to renege on deals because it often means they don’t need to waive important contract contingencies in order to compete like they did during last year’s home-buying frenzy,” Redfin noted.
Contingencies can include inspections to see if there’s any issues with the home, or whether they can get the mortgage required, or whether the appraisal is different from the agreed-upon amount.
“‘A slowing housing market is allowing buyers to renege on deals.’”
— Redfin
And “some buyers may also be backing out of deals because they’re waiting to see if home prices fall,” the company added.
More than a quarter of buyers looking to buy a home in Jacksonville, Fla. backed off in August, Redfin said, which is the highest percentage among the major 50 metro areas in the U.S. Las Vegas, Atlanta, and Orlando followed. (Top 10 list below)
These destinations were hotspots during the pandemic for buyers as they were affordable and in the era of remote-work.
But that’s changed.
“Sun Belt cities including Phoenix, Tampa and Las Vegas attracted scores of house hunters during the pandemic, driving up home prices,” Redfin said.
“Now their housing markets are among the fastest-cooling in the nation, giving buyers the flexibility to bow out,” they added.
Redfin analyzed Multiple Listing Services data going back to 2017 to analyze the drop-outs.
The share of buyers backing out of deals was the lowest in Newark, N.J., at 2.7%, followed by San Francisco, Nassau County, N.Y., New York City, and Montgomery County, Pa.
A big reason for the cancellations is high rates. The 30-year is at 6.29% as of Sept. 15. That’s up from 2.88% a year ago.
Homes are also still expensive. While existing-home prices are coming down, the median price of an existing home in the U.S. is still $389,500 in August, up 7.7% from a year earlier, the National Association of Realtors said.
“‘I advise sellers to price their homes competitively based on the current market.’”
— Sam Chute, a Miami-based real-estate agent at Redfin
With this tough backdrop of nervous buyers, “I advise sellers to price their homes competitively based on the current market,” Sam Chute, a Miami-based real-estate agent at Redfin said, “because deals are falling through and buyers are no longer willing to pay pie-in-the-sky prices.”
To be clear, the indigestion in the real-estate market was deliberately constructed: Home prices coming down as a result of higher rates and sellers reacting to lower demand is a “good thing,” Federal Reserve Chairman Jerome Powell said during a Wednesday press conference when they announced the rate hikes.
“Housing prices were going up at an unsustainably fast level,” Powell said.
“For the longer term, what we need is supply and demand to get better aligned, so that housing prices go up at a reasonable level …and that people can afford houses again,” he added. “The housing market may have to go through a correction to get back to that place.”
These are the top 10 cities where deals are falling through:
City
Percentage of pending sales that fell out of contract
Jacksonville, Fla.
26.1%
Las Vegas, Nev.
23%
Atlanta, Ga.
22.6%
Orlando, Fla.
21.9%
Fort Lauderdale, Fla.
21.7%
Phoenix, Ariz.
21.6%
Tampa, Fla.
21.5%
Fort Worth, Tex.
21.5%
San Antonio, Tex.
21.1%
Houston, Tex.
20.6%
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com
The U.S. housing market slowed for a seventh straight month in August, the longest stretch of declining sales since 2007, as higher mortgage rates continued to undercut buyer demand.
Home sales look poised to decline further in the coming months, economists say, as mortgage rates recently topped 6% for the first time since 2008, when the U.S. was in a recession. Many first-time buyers have been priced out of the market, and existing homeowners are opting to stay put rather than give up their current low rates.
“As long as mortgage rates remain elevated, sales will remain depressed,” said
Daryl Fairweather,
chief economist at real-estate brokerage
Redfin Corp.
The decrease in home sales is rippling through the economy. Consumers are spending less on housing-related items such as furniture and appliances, while construction of new single-family homes has also slowed.
Sales of previously owned homes dropped 0.4% in August from July to a seasonally adjusted annual rate of 4.8 million, the weakest rate since May 2020, the National Association of Realtors said Wednesday. August sales fell 19.9% from a year earlier.
The housing market has softened in recent months as the Federal Reserve aggressively raises interest rates to cool the economy and bring down high inflation. The Fed approved raising its benchmark federal-funds rate by 0.75 percentage point Wednesday.
The Fed’s interest-rate moves have led to higher mortgage-interest rates and increased borrowing costs for home buyers by hundreds of dollars a month, pushing many out of the market. The average rate on a 30-year fixed-rate mortgage was 6.02% in the week ended Sept. 15, up from 2.86% a year earlier, according to housing-finance agency
Freddie Mac.
The pandemic-fueled housing market activity in mid-2020 when many Americans moved to larger houses with more outdoor space while spending greater time at home. Bidding wars were widespread, and homes were often snapped up in a matter of days.
The recent increase in mortgage rates is expected to further weigh on home sales this month and next. Homes typically go under contract a month or two before the contract closes, so the August data largely reflect purchase decisions made earlier in the summer. Mortgage rates rose to 5.81% in June, then pulled back for much of the summer.
Economists have long said that renting and investing in the stock market is a better investment than owning a house, and in 2022 that could be especially true. WSJ’s Dion Rabouin explains. Photo illustration: Elizabeth Smelov
The drop in demand is reducing buyer competition, and home-price growth has slowed from last year’s rapid pace. But prices remain above where they stood a year ago, because the number of homes for sale is still below normal levels.
The median existing-home price rose 7.7% in August from a year earlier to $389,500, NAR said. Prices fell month-over-month for the second straight month after reaching a record high of $413,800 in June. While prices typically decrease in the late summer, the monthly declines have been bigger than normal, said
Lawrence Yun,
NAR’s chief economist.
The combination of high prices and rising interest rates has pushed home-buying affordability near its lowest level in decades. General economic uncertainty is also keeping buyers on the sidelines, said Odeta Kushi, deputy chief economist at
First American Financial Corp.
“To make the biggest financial decision of your life, you need to have some confidence in the economy, in your job, in the labor market,” she said.
Consumer sentiment toward the housing market fell in August to the lowest level since 2011, according to
Fannie Mae.
Many buyers rushed to purchase in the first few months of the year, because they expected mortgage rates to rise, reducing the number of buyers left in the market today, said Redfin’s Ms. Fairweather. “We’re experiencing an especially cold fall and winter, because the spring was so hot,” she said.
Philip Natale went under contract to buy a new home in Henderson, Nev., in December. By the time he locked in an interest rate this spring, rates had climbed from around 3% to above 5%, pushing up his monthly payment by several hundred dollars.
Philip Natale, with his mom, Michelle, in hat, says rising interest rates pushed up his monthly payment on a new Henderson, Nev., home. Charlie and Ashley Richards bought their first home in Charleston, S.C., in September.Philip Natale; Sandra Dawson
“It’s horrible,” he said, but he hopes to refinance the loan at a lower rate within the next year or two. “The first 12 to 18 payments are probably going to be a big bummer,” he added.
To save on costs, Mr. Natale is eating out less and has decided to delay buying a car. “I just don’t want to feel the stress of adding a car at the same time as I’m buying a home,” he said.
In the four weeks ended Sept. 11, 7.2% of homes on the market each week had a price drop, up from 3.8% a year earlier, according to Redfin. Homes on average sold for 0.5% below their final list price, compared with 1.1% above list price a year earlier.
Nationally, there were 1.28 million homes for sale or under contract at the end of August, down 1.5% from July and unchanged from August 2021, NAR said.
“Home-price growth is likely to continue to decelerate,” Oxford Economics—which forecasts that existing-home sales will fall further through the end of the year—said in a note to clients. “But the limited supply of homes for sale will likely prevent too steep a decline.”
Charlie and Ashley Richards, who are both 29, started shopping for the first home in Charleston, S.C., in June after they found out their rent was going up by $800 a month.
“We got into the market at the right time. Stuff was starting to slow down a bit,” Mr. Richards said. “There were a handful of houses that we looked at that had been on the market for 30 to 60 to even 90 days.”
They bought a house this month for about 3% below the asking price. “I’m very excited,” Mr. Richards said.
Write to Nicole Friedman at nicole.friedman@wsj.com
The new home market, which accounts for about 10% of home sales, has also shown signs of weakness. A measure of U.S. home-builder confidence fell for the ninth straight month in September to the lowest level since May 2020, the National Association of Home Builders said this week. About one-fourth of builders surveyed said they had reduced prices in the past month, NAHB said.
Residential permits, which can be a bellwether for future home construction, also fell 10%, though housing starts rose 12.2% in August from July, the Commerce Department said this week.
News Corp,
owner of The Wall Street Journal, also operates Realtor.com under license from NAR.
Some markets may be more vulnerable to home price cuts than others, pros say.
Getty Images
Buyers in some markets are already getting — or may soon get — some relief in the form of lower home prices, pros say. Already, in the last 4 – 8 weeks, experts have noticed downward price pressure in higher priced markets that were previously robust. (See the lowest mortgage rates you may get now here.) “These were markets where the median sale-to-list price ratio was running well in excess of 5% above list price, and examples include San Francisco, San Jose, Austin, Denver and Seattle,” says Chris Stroud, co-founder and chief of research at HouseCanary, a technology-powered national brokerage that provides residential real estate analytics.
All of the cities listed above experienced a pretty quick decline in their respective median closing prices during July and August as buyers no longer had to get into bidding wars or make offers above asking to be competitive. “Median closing prices have largely stabilized in these markets for the most part over the last few weeks now that excesses have been worked out of the system,” says Stroud.
The markets with the highest share of price cuts in Realtor.com’s July data are mostly clustered in the Sun Belt and include Las Vegas, Phoenix, Austin, Sacramento, Denver, Portland, Dallas-Fort Worth, Nashville, Tampa and San Diego.
See the lowest mortgage rates you may get now here.
Where will we see home price cuts in the future?
Those same markets may see more declines, says Realtor.com’s senior economist George Ratiu. “As we look toward the next few months of rebalancing, we can expect these markets to feel an increasing squeeze on list prices, as seasonal trends take deeper root and buyer traffic waves from summer’s peak.”
For their part, a team of Goldman Sachs strategists said that metro areas in the west are more likely to see a price correction, and that’s “especially true for markets with low levels of housing affordability, such as Seattle, San Diego and Los Angeles.”
Longer term, price decreases will depend, in part, on where inventory increases quickly and excessively in conjunction with suppressed demand due to interest rates, experts say. “Going into the rate increase period, the majority of markets were experiencing record low inventory. This environment has so far prevented large price declines in many areas across the country,” explains Stroud, who notes that that may change.
See the lowest mortgage rates you may get now here.
Markets that saw an especially large influx of out-of-staters — places like Boise, Denver and Salt Lake City — may be more vulnerable to price drops as the shift to remote work is largely complete, says Kate Wood, home expert at NerdWallet. “It’s a double whammy for home sellers as the influx of deep-pocketed out-of-staters dries up and many local residents are now priced out. With home prices remaining high, these markets are still far from buyer-friendly, but sellers probably shouldn’t expect the bidding wars and zero-contingency offers that proliferated over the last two years,” says Wood.
As housing markets are pulling back in the wake of higher mortgage rates, prices and inflation, some of these markets are finding they have a growing volume of lingering inventory and not enough buyers, says Ratiu. “For homeowners who are motivated to sell, the answer is increasingly an old-fashioned one – price cuts. Even as median list prices continue to advance—the result of homeowners pricing properties based on market data from months ago—growing inventory and shrinking buyer traffic are starting to put downward pressure on prices,” says Ratiu.
The advice, recommendations or rankings expressed in this article are those of MarketWatch Picks, and have not been reviewed or endorsed by our commercial partners.
SINGAPORE—China’s economy stumbled in July as a two-month boost from easing lockdowns faded, prompting the country’s central bank to unexpectedly cut two key interest rates in an effort to shore up faltering growth.
A raft of data released Monday showed economic activity slowed across the board in July, including factory output, investment, consumer spending, youth hiring and real estate, highlighting the breadth of the economic challenge facing policy makers in a politically sensitive year for leader
Xi Jinping,
who is expected to break with recent precedent and seek a third term in power this fall.
The fresh evidence of China’s slowdown adds to the headwinds facing the global economy this year, which is already reeling from the fallout from Russia’s invasion of Ukraine and efforts by central banks in the U.S., Europe and beyond to tame rocketing inflation by jacking up borrowing costs.
The world’s second-largest economy is straining under the effects of Beijing’s zero-tolerance approach to Covid-19 and a deflating property bubble, which have triggered protests and mortgage-payment strikes in several provinces and cities. Consumers are reluctant to spend and businesses are wary of investing, a consequence of the “humongous uncertainty about the future,” said
Alicia García-Herrero,
Asia-Pacific chief economist at investment bank Natixis in Hong Kong.
One stark sign of China’s economic malaise: One in five Chinese youth, or 19.9%, was unemployed in July, Wednesday’s figures showed, the highest level since China started publishing such data in 2018.
On Monday, the People’s Bank of China cut by 0.1 percentage point two key interest rates and pumped the equivalent of $59.3 billion into the financial system to rev up lending and wider economic growth. The unexpected move marked a small step toward more support for China’s economy, and may foreshadow further cuts to borrowing costs in the months ahead, some economists said.
Job seekers lining up in Shanghai.
Photo:
Cfoto/Zuma Press
But overall, officials have signaled they are unpersuaded by the need for more forceful policy action, mindful of risks such as rising inflation and ballooning debt. Senior Chinese leaders have effectively dropped a growth target of around 5.5% for the year, and the question now for many economists is just how feeble growth is likely to get.
Data released by China’s National Bureau of Statistics Monday showed industrial production rose 3.8% from a year earlier in July, easing from a 3.9% year-over-year increase in June and well short of the 4.5% growth expected by economists polled by The Wall Street Journal.
Factory output and exports have been a bright spot for Chinese growth for the past two years, especially after production resumed and supply-chain kinks were worked out following the lifting of lockdowns imposed in the spring to contain Covid-19. But economists have long expected demand for Chinese goods to begin to fade as consumers in the West feel the pinch from rising prices and interest rates.
Retail sales, a key gauge of consumer spending, grew 2.7% from a year earlier in July, a weaker reading than the 3.1% recorded in June and the 5.0% increase expected by surveyed economists.
Growth in retail sales in July was little more than half what economists expected.
Photo:
Qilai Shen/Bloomberg News
Consumer confidence has been rocked by the threat of repeated lockdowns and China’s property bust. Separate data released Monday showed new home prices posted their steepest year-over-year decline in more than six years in July, highlighting the strain in the real-estate market after a yearlong regulatory squeeze that has hit sales and led to stalled projects and developer defaults.
Average new-home prices in 70 major cities fell 1.67% in July from a year earlier, compared with June’s 1.29% decrease, according to Wall Street Journal calculations based on data released Monday by China’s statistics bureau.
On a month-on-month basis, average new-home prices fell for an 11th consecutive month. Prices dropped 0.11% in July from June, widening from the previous month’s 0.10% decline, the statistics bureau said. Only 30 of the 70 cities recorded a month-over-month increase in home prices in July, down from 31 cities in June.
Officials have pinned their hopes for an economic revival this year on lavish government spending on infrastructure, but data so far suggest the benefits of that push have been limited, likely reflecting financing strains on the provincial governments tasked with implementing the policy, economists say. Fixed-asset investment slowed in July, rising 5.7% on year in the January-July period, compared with the 6.1% pace recorded in the first half of the year. Economists had expected growth of 6.2%.
The unemployment rate for those age 16 to 24 rose to 19.9% in July, from 19.3% in June, setting a record. The overall jobless rate edged down, however, to 5.4% from 5.5%.
Senior Chinese Communist Party officials announced no new fiscal stimulus measures at a meeting late last month and pledged to stick with their zero-tolerance approach to managing Covid outbreaks, while appearing to drop their official goal of increasing gross domestic product by around 5.5% this year. Many economists expect China to record growth of around 3% to 4% in 2022.
—Grace Zhu and Bingyan Wang in Beijing contributed to this article.
Housing has become increasingly unaffordable to millions of Americans — with home prices and mortgage rates continuing to rise (see the lowest rates you may qualify for now here). So – as part of our series where we ask prominent economists and real estate pros their take on the housing market now – we talked to Mark Fleming. Fleming – the chief economist for title, settlement, real estate data and risk solutions company First American Financial Corporation – has analyzed and forecast the real estate and mortgage markets for 20 years. Before becoming the chief economist at First American, Fleming developed insights and analytical products for CoreLogic as well as valuation models at Fannie Mae and today his research expertise includes real estate and urban economics and mortgage risk. So we asked Fleming: What do today’s buyers and sellers need to know about the housing market?
Mortgage rates are higher, but they’re still not high
Though they’re significantly higher than three months ago, which reduces house-buying power, they’re around 6% for a 30-year fixed-rate mortgage, which Fleming says is a far cry from high. “Mortgage rates are higher but by historical standards are not high,” says Fleming. He has a point: This chart from the St. Louis Fed shows the curve of mortgage rates since 1975. (See the lowest rates you may qualify for here.)
Affordability is increasingly a challenge for buyers
Home price appreciation has been rapid in the last two years. Indeed, according to data from the National Association of Realtors, the median sales price for an existing home was up 17% from last year. “That’s important because it’s been practically impossible for house-buying power to keep up, and consequently, affordability has been declining,” says Fleming.
Fleming says house price appreciation, as measured by many of the house price indices reported in the media, have a significant lag, sometimes as much as six months. “It’ll be a few more months before the house price indices reflect how prices have reacted to the rapid increase in mortgage rates in the second quarter,” says Fleming.
Prepare for slower home price growth
But just because affordability is a challenge, doesn’t mean home prices are going to fall. Fleming says his research shows that during rising mortgage rate eras like we’re experiencing now, the number of home sales does tend to decline but house prices generally don’t. “Fewer sales and less price appreciation is the expectation,” says Fleming.
The housing market is cooling
Watch inventory levels and the amount of seller price reductions on listings. “These are the leading indicators of where prices will go and how the increase in mortgage rates have affected demand. More inventory and more seller price reductions signal a cooling market,” says Fleming. For sellers, this means a reset on the expectation of how quickly their home will sell. “Mere days on the market were never normal. In fact, the old adage used to be that sellers should typically expect their home may take up to 3 months on the market to sell. Of course, we’re a long way from that yet, but sellers should expect it to take longer to sell their home. For buyers, expect less fierce competition to buy a home,” says Fleming. (See the lowest rates you may qualify for here.)
Consider an ARM, and be a smart shopper
Given the current market, Fleming says it’s easy to lose focus amid shifts in mortgage rates and other housing dynamics. “The reality is some basic steps remain important and are not much different than any market. Shop around for the best mortgage and in a rising-rate market, investigate adjustable-rate mortgages for the lower rate benefit. Make your choices based on home as shelter, rather than an investment return opportunity and have patience,” says Fleming.
As part of our series where we ask prominent economists and real estate pros their take on the housing market now, we talked to Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors.
National Association of Realtors
The housing affordability crunch is here — with mortgage rates continuing to rise (see the lowest rates you can qualify for here) at the same time that housing prices do. So – as part of our series where we ask prominent economists and real estate pros their take on the housing market now – we talked to Nadia Evangelou. She’s the senior economist and director of forecasting at the National Association of Realtors (NAR), and focuses on regional and local market trends, including the effects of changing demographic and migration patterns. She also specializes in research and analysis on local housing affordability conditions and solutions to increase housing inventory. Here are her thoughts on the housing market now.
The outlook is for mortgage rates to rise even further
Mortgage rates for 30-year fixed loans hit roughly 6% in June, up from a little over 3% a year ago, according to Bankrate data. The upward climb will continue, says Evangelou, just not at that same rapid pace: “I don’t expect to see the same sharp increases that the market experienced in March and April. It seems that mortgage rates have already priced in some of the effects of the upcoming Fed’s rate hikes,” says Evangelou.
Some buyers may want to consider an ARM
Given the current market, Evangelou says some buyers should consider taking an adjustable-rate mortgage instead of a fixed-rate mortgage. “If they plan to sell or refinance in the next 5 years, a 5/1-year ARM may make more sense because the rate on these is still below 4.5%. Thus, for a median-priced home, the monthly mortgage payment is about $300 lower than the payment for a 30-year mortgage,” says Evangelou. You can see the lowest mortgage rates you can qualify for here.
There are signs that the market is cooling
Both rising mortgage rates and home prices hurt affordability for many buyers. “As a result, existing home sales have dropped for the last four months. I expect a larger reduction of the home sales activity in the following months, especially after summer months,” says Evangelou.
And buyers are getting priced out of the market. Still, not all home buyers can afford to buy these additional homes. According to Evangelou, buyers earning $75,000 can afford about 25,000 fewer listings now compared to January.
Institutional buyers may increase competition for first-time buyers
With rising mortgage rates hurting affordability, more people are renting and due to low inventory, rents are rising sharply. “For institutional buyers, this translates to larger profits. However, a larger market presence of institutional buyers increases market competition for first-time home buyers. Research has shown that institutional investors may be taking a significant portion of homes that would otherwise be sold to first-time and lower-income buyers,” says Evanagelou.
Home prices will continue to rise but at a slower pace
“Due to a housing shortage, home prices won’t drop in 2022. Remember that when there is a housing shortage, home prices don’t fall, in fact, home prices rose about 15% in May, although mortgage rates were about two percentage points higher than a year earlier,” says Evangelou.
Inventory is rising
There are about 20,000 more homes available for sale for buyers earning $200,000. “While it’s promising to see more homes available in the market, more entry-level homes are needed,” says Evangelou.
“‘I don’t think that home sales are going to grind to a complete halt. They’ll just slow. People will still be able to sell homes, but it may take you just a little bit longer than what it’s been.’”
— Len Keifer, deputy chief economist at Freddie Mac
The U.S. housing sector is in the midst of the biggest slowdown in over a decade, one economist says. But don’t expect prices to fall back down to earth just yet.
“The U.S. housing market is at the beginning stages of the most significant contraction in activity since 2006,’” Len Keifer, deputy chief economist at Freddie Mac
FMCC,
-1.82%,
tweeted.
“It hasn’t shown up in many data series yet, but mortgage applications are pointing to a large decline over summer,” he explained.” He said home-purchase mortgage applications are down 40% from their most recent peak in 2021.
Purchases and refinance applications are in fact down to the lowest level in 22 years.
Mortgage applications as a data point “gives you a sense of where the market might be headed,” Keifer said in an interview with MarketWatch, “because that’s the early stages of when people are looking to buy a home. And if the volume of applications falls, that tends to indicate that in a month, month and a half, mortgage originations of home closings will also decline.”
Keifer expects home sales to henceforth “slow quite a bit over the summer.”
Meanwhile, Freddie Mac data released on Thursday morning revealed that mortgage rates have risen, on the back of rising interest rates and inflation.
To be clear, “I don’t think that home sales are going to grind to a complete halt,” Keifer stressed. “They’ll just slow. People will still be able to sell homes, but it may take you just a little bit longer than what it’s been.”
Would prices fall as a result of a ‘contraction’?
While some may jump to the conclusion that weaker data represents a possible fall in home prices, experts caution otherwise.
“Does this mean that house prices are going to crash? I don’t think so,” Keifer said.
Freddie Mac’s research shows that when interest rates go up, while home sales and mortgage originations go up, house prices won’t necessarily fall or rise. “They tend to be stickier,” Keifer said.
“And while the rate of growth tends to slow, they don’t tend to fall,” he added.
