NEW YORK (AFP) – Higher borrowing costs are leading to fewer United States (US) home sales, but prices are staying elevated in a holdover from the torrid peak-pandemic market.
In November, existing home sales were down more than a third from the January 2022 level, according to the National Association of Realtors (NAR).
That came shortly after the borrowing rate for a 30-year fixed mortgage – the reference lending product in US real estate – hit 7.16 per cent in late October, the highest level in 21 years.
Interest rates have retreated slightly since then, but stand well above their levels for most of the last decade and a half, a reflection of the Federal Reserve’s (Fed) monetary policy pivot to counter inflation.
“The market has certainly shifted here in Denver,” said real estate agent for Compass in Colorado,David Schlichter who called the peak pandemic of the recent past “the hottest market in history”.
But today’s batch of properties last longer on the market and are “selling for a price below the asking price”, Schlichter said.
Drake, a home buyer who declined to give his last name, expects to soon close on a house in Austin, Texas at four per cent below the listing price.
“Now is the best time to buy in the last 1.5-two years if you’re reasonably secure in your job and have a decent down payment saved,” he told AFP.
Notwithstanding these examples, real estate prices have remained relatively strong, reflecting the limited stock of available homes, said industry insiders.
The median sales price in November was USD370,700, according to NAR, down 11 per cent from the June peak.
But that’s still up 3.5 per cent from the year-ago period and some 30 per cent higher compared with May 2020 before the pandemic set the market ablaze.
In light of a slowing economy, CoreLogic has forecast that prices will fall 2.8 per cent by November in 2023 compared with the 2022 period.
But nothing like the 2008 subprime debacle is expected. Between June 2008 and January 2012, home prices slumped 27 per cent amid the Great Recession.
Lending practices in the US housing market have changed significantly from that period.
In 2006, nearly 35 per cent of mortgages were tied to an adjustable-rate in which lending fees rose when the Fed lifted interest rates.
Today, only about 10 per cent of mortgages do this, insulating most legacy mortgages from a hit from the Fed’s pivot away from near-zero interest rates.
The limited volume of available housing stock is another big point of contrast with that period.
Real estate companies overbuilt during the last housing boom period during the first decade of the 21st Century, said Chief Economist at NAR Lawrence Yun.
“The homebuilders have been underproducing for this past decade,” Yun said. “So if there’s a mild recession again, I think the inventory increases should not be that great.”
