Home Listings are Rising and Home Buying Demand is Falling
Written By: Joel Palmer, Op-Ed Writer
Real estate brokerage Redfin reported that new listings of U.S. homes for sale rose 7.9 percent from a year earlier during the four weeks ending February 2.
Meanwhile, pending sales are improving slightly, but still down 8.1 percent year over year.
The uptick in new listings and lack of sales is contributing to a growing pool of supply for homebuyers to choose from. Redfin reported housing supply of five months on the market, up from 4.4 months a year earlier and the most in six years.
Even with more supply in the market, would-be buyers are holding off. The primary reason is that home buying remains a costly proposition, with the median monthly house payment currently at $2,784, up 8.3 percent from a year ago. Redfin also noted that some buyers are waiting because they don’t want to make a major purchase amid uncertain federal economic policy.
The latest Fannie Mae Home Purchase Sentiment Index® showed that, for the second month in a row, only 22 percent of respondents felt it was a good time to buy a home.
“Consumers seem increasingly pessimistic that housing affordability conditions will improve across the board, as a growing share expects home prices, rent prices, and mortgage rates will all go up,” said Kim Betancourt, Vice President of Multifamily Economics and Strategic Research at Fannie Mae.
A potential bright spot for mortgage underwriters and processors is that higher mortgage rates have increased the potential refinance market.
Redfin reported last week that just over 17 percent of U.S. homeowners have mortgages with at least a 6 percent rate, the highest share since 2016.
Less than two years ago, only 12 percent of homeowners carried mortgage rates as much or more than 6 percent. Redfin said the share could nearly double in the next three years.
Here’s a breakdown of where today’s homeowners fall on the mortgage-rate spectrum, according to Redfin:
82.8 percent of mortgaged U.S. homeowners have a rate below 6 percent, down from a record 92.7 percent in the second quarter of 2022 and the lowest share since the end of 2016.
73.3 percent have a rate below 5 percent, down from a record 85.6 percent three years ago and the lowest share since the third quarter of 2017.
55.2 percent have a rate below 4 percent, down from a record 65.1 percent three years ago and the lowest share since the fourth quarter of 2020.
21.3 percent have a rate below 3 percent, down from a record 24.6 percent three years ago and the lowest share since the second quarter of 2021.
There is a lower share of homeowners with mortgage rates above 6 percent because anybody who bought a home in the last two yers did so at a time when the average was above that mark. Currently, the average 30-year fixed rate is just under 7 percent.
The further away the market moves from the record low mortgage rates following the Covid-19 pandemic, the less the impact of the lock-in effect. The lock-in effect is a phenomenon where homeowners remain in their homes because they have such a low rate and don’t want to buy another home at a much higher rate.
America has been grappling with a severe housing shortage, in part because the lock-in effect has disincentivized people from putting their homes up for sale. Mortgage rates are now more than double the 2.65 percent record low hit during the pandemic.
But as Redfin noted, it’s not realistic for some owners to stay put forever, which is why the lock-in effect is easing. This is helping to alleviate the housing supply shortage. In addition, many Americans have accepted that rates will unlikely fall to pandemic lows anytime soon, so they may as well jump back into the market before rates and/or home values increase any further. The recent surge in values has also provided homeowners with sufficient equity to justify selling and taking on a higher mortgage rate, especially if they’re moving to a more affordable dwelling.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
