All Major Categories Point Toward Home-Market Slowdown

Housing inventory in 35 key markets overall was down 35% year-over-year in January, down 8% YoY in March, and is now up 79% YoY, according to market-watcher Bill McBride of the CalculatedRisk blog.

August is much of the same, he said. According to McBride’s first, early look at local markets in August, “We are seeing a sharp decline in closed sales, and inventory is up significantly year-over-year.” He said new listings are down as the “sellers’ strike” continues.

Added McBride, all major statistical categories point toward a market slowdown. Days in the MLS in July are up 120 percent since last year at this time, and the close-price-to-list-price ratio dropped below 100 percent for the first time since July 2020, to 99.41 percent.

Meanwhile, the median sales price decreased 2.54 percent from the previous month.

Home Inventory Highest Since Nov 2020

Likewise, reported last week by Marcus & Millichap, there is no shortage of homes available for buyers unhindered by the rising borrowing costs. Inventory hasn’t been this plentiful since November 2020, according to Marcus & Millichap.

Home purchases in July were down 19 percent year-over-year, also marking the sixth consecutive month in retreat.

The median price of an existing home fell for a second straight month in July to $394,400 as sellers adjust their prices – translation: lower them.

It is expected that the Fed will raise rates again in 2022, creating more of a short-term impact on the housing market overall.

“This will sustain the rental sector, as a growing number of residents are priced out of ownership,” according to the report.

The home improvement and self-storage sectors could also benefit from this lack of mobility, Marcus & Millichap said.

What’s not getting any love is the newly-built home market, which is becoming oversaturated, according to the report.

Single-family homes under construction listed on the market climbed over 30 percent year over year while these houses that sold fell 40 percent from the prior year.

Properly Calculating ‘Months’ Supply

John Hunt, Principal & Chief Analyst, MarketNsight, took issue with the report, telling GlobeSt.com that the authors looked at only new homes instead of the total market when calculating months of supply.

“The ultra-low number of completed homes can have a constraining effect on the closing number, which in turn can make the ‘months of supply’ figure look high, Hunt said. “The Census Bureau exacerbates this problem by adding homes not started and homes under construction to their count of total inventory.

“You cannot look at new homes in isolation from the total pipeline, since ‘new’ only accounts for 10%.

The bottom line is this: if all of the 312,000 new homes under construction today were to hit the market as completed all at once, it would only take the total ‘months of supply’ in the country to 3.8. This would still be far below the industry equilibrium of six months.”

NYC Lacks New Inventory

Scott Harris, a top producing agent at Brown Harris Stevens, tells GlobeSt.com, regarding the NYC market, “There is still a lack of inventory here relative to historic trends. At worst we seem to be reverting to the mean.

“[What] we’re not seeing is new housing stock. There isn’t nearly enough new construction in the five boroughs.”

Louise Phillips Forbes, a 30+ year industry veteran and top Brown Harris Stevens agent in NYC, tells GlobeSt.com, “The Fed is desperate to try to target the housing market because it represents 32% of the Consumer Pricing Index (CPI).

“The abrupt interest rate increases in the spring drove the rental market’s significant activity and absorption, specifically creating urgency with buyers who found themselves priced out of the more affordable for sale market.”

Forbes said that stock market volatility and interest rate increases are not going to have the same sweeping impact in cities like Manhattan where the price-to-entry is significantly higher than the national average.

“These buyers will get creative by way of their bank relationships, whether it be buying down the rate, looking to 20-year mortgages, or the like,” she said. “Additionally, banks will begin raising their loan limits in 2023, and moving up debt to income ratios for well-qualified buyers to complement and satisfy the times.”

ARMs an Option for Homebuyers

David Druey, Centennial Bank Florida regional president, tells GlobeSt.com that despite specific markets in Florida seemingly not being impacted by increased interest/mortgage rates, such as South Florida, affordability can be a barrier to purchasing homes.

“For those seeking home ownership in today’s economic climate, adjustable-rate mortgages (ARMs) may be a better choice to offset higher than usual interest rates. ARMs provide the ability to lock in a lower introductory interest rate and reduced monthly payments. It can be an attractive option because the borrower can typically qualify for a higher loan amount.”