The inventory of homes available for purchase in the resale market has been dwindling, and the situation is only set to worsen. According to Realtor.com, the number of homes for sale this month was actually 7% higher than in June of the previous year. However, this positive trend quickly reversed, as the number of homes for sale fell below year-ago levels for the first time in 59 weeks.
In the final week of June, new listings were down by a significant 29% compared to the same period the previous year. This drop is even wider than what was observed in previous weeks. The surge in mortgage rates, which surpassed 7% again for the 30-year fixed rate, has created little incentive for homeowners to sell their properties. The majority of homeowners with mortgages are enjoying rates below 4%, with some even below 3%.
With an even tighter housing market on the horizon, it is unlikely that home prices will cool down. Prices reached their peak last June, having risen by over 45% from pre-pandemic levels. They began to decline due to the rapid increase in mortgage rates. However, according to the most recent S&P Case-Shiller home price index, prices hit their lowest point in January, despite interest rates remaining high and sales slowing down.
Craig Lazzara, the managing director at S&P DJI, stated that the ongoing recovery in home prices is widespread. Meanwhile, pending sales, which measure signed contracts on existing homes, fell by nearly 3% in May compared to April, according to the National Association of Realtors (NAR). Lawrence Yun, NAR’s chief economist, acknowledged the sluggish pending contract signings but highlighted the resilience of the housing market, noting that there are approximately three offers for each listing. However, he emphasized that the lack of housing inventory continues to hinder the fulfillment of housing demand.
On the other hand, the nation’s homebuilders have been capitalizing on the tight market conditions, with sales increasing by 12% in May compared to April, as reported by the U.S. Census. Higher mortgage rates have had less of an impact on homebuilders, as some of them have their own mortgage arms and have been lowering rates for buyers. In May, there were twice as many homes sold but not yet started compared to the previous year.
Despite the slight increase in single-family housing starts, they still remain below historical levels. Builders have been underbuilding since the great recession, which means that the housing market was already undersupplied even before the recent surge in demand caused by the pandemic. Peter Boockvar, the chief investment officer at Bleakley Financial Group, highlighted the existing home market’s depressed state, describing it as experiencing a serious case of stagflation, with few transactions occurring but at still very high prices.
The resale housing market is facing challenges due to a shortage of inventory. Homeowners are reluctant to sell their properties due to the surge in mortgage rates. As a result, home prices continue to rise, and pending sales are declining. However, homebuilders are benefiting from the market conditions, and sales have increased. Nevertheless, the overall housing market is experiencing a lack of supply, resulting in limited transactions at high prices.