The National Association just published housing statistics for June and it is clear that home sales hit the brakes. The number of homes that went under contract in June is down substantially. This likely means the statistics for closed homes in August could fall off a cliff.
“Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date. There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize.”
Home sales will be down by 13% in 2022, according to our latest projection. With mortgage rates expected to stabilize near 6% and steady job creation, home sales should start to rise by early 2023.”
Lawrence Yun, Chief Economist, National Association of Realtors
None as this is a surprise in an environment where inflation has caused the Federal Reserve Bank to increase interest rates. When this happens mortgage interest rates respond accordingly. Today the Fed increased interest rates by 0.75% (three-quarters of a point) which dramatically reduces the affordability of a home for buyers who need a mortgage loan to purchase a home.
“The Federal Reserve on Wednesday raised its benchmark interest rate by three-quarters of a percentage point for the second straight meeting in an effort to tamp down inflation that’s been running at a four-decade high.”
Wall Street Journal, 7/27/2022
What lies ahead for the housing market? We are likely looking at a cooling-off period in the market where fewer homes will be bought and sold. Sellers will be reluctant to give up homes where they have a 2.5%-3.5% mortgage loan and then turn around and purchase a home with a 6-7% mortgage loan. This is not rocket science folks.
Buyers can simply afford less home than they could just two months ago. THe rising mortgage interest rates take a big bite out of their buying power.
“Looking ahead, a slowdown in economic activity and pullback in business investments could lead to a moderation in the pace of mortgage rate gains, as investors shift allocations toward the safety of bonds. Combined with the increase in housing supply, we could see improved opportunities for homebuyers later in the year. The bottom line is that we are seeing a welcome shift for a housing market in need of a refresh.”
George Ratiu, senior economist at Realtor.com
In my experience, housing markets in transition usually offer unique buying opportunities for buyers with cash in hand. Stay tuned.