Written by Breck Hapner
The U.S. state of the housing market was definitely in flux during February 2023. To combat inflation, the Fed raised interest rates by 25 basis points (bps) on February 1st, further increasing the interest rates for home equity lines of credit (HELOC). We saw a small increase in asking prices, along with triple-digit increases in the number of reduced-price listings.
In this article, we will examine some of the forces behind the hike in mortgage rates that have affected home prices, housing inventory, and home sales. We will extrapolate from the Realtor.com Weekly Housing Trends View that features analysis for the week ending February 18th, 2023. By clicking on the “weekly housing data” link in the first paragraph of the Weekly Housing Trends View, you are taken to the Data Library “View U.S. Data” link, where you may download the spreadsheet containing the statistics referenced in this report.
So, how are high home prices and even higher mortgage rates impacting the U.S. housing market? According to Compass realtor Tricia Dessel, the rise in interest rates has affected the purchasing power of clients because “at lower interest rates, they could afford higher-priced homes, but now they are looking at lower-priced homes to keep their monthly mortgage payment within their budget.” In some instances, the impact has been so pronounced that “some buyers have opted out of a home purchase as the rates increased.”
Median Listing Price Slump
According to the Realtor.com spreadsheet data, there was a 6.5-percent increase in asking prices last week, the smallest increase we have seen across the U.S. since June 2020. Having said that, the data shows single-digit increases in asking prices for the last 10 consecutive months. In contrast, the data for every single week in 2021 (except for December) shows double-digit asking price increases. So, the median asking price for a home has begun to devalue due to the expense of mortgage rates and the relative expense of a home purchase.
Expanding Inventory/Fewer New Listings
Leveraging the spreadsheet data from Realtor.com, it is possible to examine the active listing inventory data compared to one year ago. Last week, the active listing inventory increased by 67 percent compared to last year, a 60-percent increase in the number of homes listed for sale across the U.S. This is very close to the highs recorded during the week ending January 28, 2023, when housing inventory increased 69.4 percent compared to last year. Although this is nearly a 12-month high for housing inventory, this increase is not due to a surge of new listings. In fact, the data reveals that housing inventory has been increasing for 18 of the past 23 weeks, despite the fact the data shows declines in new listings for the past 33 weeks. In addition, new listings have been decreasing by double-digits for the past four weeks in a row compared to the same time frame during 2022, and have been declining by over 10 percent for 28 of the last 30 weeks. The big picture, suggested by the data, is that the new listings gap between this year as compared to last year has actually been narrowing.
The current inventory of available homes has led to challenges. “Many homeowners with a low interest rate are not compelled to sell their homes,” Dessel said. “This is keeping inventory low and thus the competition for homes that are priced properly and prepared to sell are in demand.”
How fast or slow are houses selling in the U.S. right now? According to the Realtor.com data, last week it took approximately 24 days longer to sell a house compared to the same week in 2022. So, it’s taking more than three weeks longer to sell a home right now versus 12 months ago.
The data shows that, compared to one year ago, houses are taking longer to sell and have been for 29 consecutive weeks. And, by the way, this 24-day increase compared to 12 months ago is actually the biggest year-over-year (YOY) increase compared to July 2017.
“It is difficult to sell a home that is not priced at fair market value and is not properly prepared to sell,” Dessel said. “Because higher interest rates have pushed some buyers into a lower price point, buyers are more discerning. They prefer homes that are move-in ready and have been well maintained because their budget to update a home has been impacted.”
According to the Realtor.com spreadsheet data, the number of reduced-price listings in the U.S. increased by a whopping 148 percent last week. Although the number of reduced-price listings has decreased for the past two consecutive weeks, the stats reveal triple-digit increases during 14 out of the last 16 weeks. In other words, there has been a huge increase in the number of reduced-price listings over the past several months.
Share of Reduced-Price Listings
The share of reduced-price listings for the week ending February 18th, 2023, was 31 percent, according to Realtor.com data. This means three out of every 10 houses for sale right now have reduced asking prices. Going back to November 11th, 2022, the share was 43 percent. This means the share of price reductions has decreased by about 12 percentage points over the last three months. These are the lowest levels since early July 2022. One year ago, the share was at 18 percent. Two years ago, it was again at 18 percent. Three years ago in 2020, right at the onset of COVID, the share of reduced-price listings was 25 percent. Pre-COVID, back in 2019, the share was 27 percent. So, even though the share has been decreasing, the current level is, at least, at a four-year high.
“Buyers are more conservative this year and are not waiving contingencies,” Dessel said. “Homes that are properly priced, well presented, and turnkey are garnering more buyer interest and are going under contract quicker.”
Important Summary Trends
So, inventory has been rising but there are fewer new listings. The number of homes for sale (housing supply) has been on a downward trend since November 2022 (housing supply is at its lowest levels since June 2022). New listings have been declining by double-digits for 28 out of the last 30 weeks.
There has been a huge increase in the number of reduced-price listings over the past few months, and triple-digit YOY gains in 14 of the last 16 weeks. Houses are taking longer to sell (compared to the same week one year ago) for 29 consecutive weeks.
Mortgage rates, in general, had been on a downward trend this year until we hit February. According to the Mortgage News Daily, the average 30-year fixed mortgage rate has risen from 5.99 percent on February 2 to 6.8 percent on February 23.
The data suggests that rates increasing to 80bps (.08 percentage points) since February 2nd have fueled many of the current changes cited above. Housing affordability is becoming a real issue. Average mortgage rates are around 2.6 percentage points higher than 12 months ago, which equals a 26 percent decrease in a buyer’s purchasing power. Since the February 1st hike, buyers looking to purchase a $400,000 home today with five percent down versus at the beginning of February would pay around $220 more per month for their housing payment. That’s a significant increase in just the last three weeks.
On February 1st, 2023, the National Association of Realtors (NAR) reported a small decline in existing home sales from December 2022 to January 2023. However, based on NAR data, the rate of home sales in January 2023 fell to the lowest levels since October 2010. We will need more data, especially during the spring months, to gauge what will happen this year, since sales are highly rate dependent.
How will home buyers react to the fact that mortgage rates have surged from 6 percent to 6.8 percent in just three weeks? We could see a slew of cancellations, and/or investors delaying the home-purchasing process. We shall see. However, a Bloomberg article from February 22nd, 2023 reported that the Mortgage Bankers Association (MBA) has cited the slowest demand for mortgage applications since 1995. So, according to the MBA, we are starting to see some early signs that demand is once again decreasing. Mortgage purchase applications have decreased in three out of the last four weeks (and down 41 percent YOY).
This is obviously telling us that home buying demand is decreasing, given the fact that mortgage rates have been surging.
One thing that is almost certain is that the future disposition of the U.S. housing market will be highly dependent on the direction of mortgage rates. Inflation is starting to slow down, but it remains stubbornly high. Although rate hikes will probably be smaller this year, Wall Street is expecting at least two consecutive 25 basis points rate hikes in March, May, and June. In light of recent strong data, Jerome H. Powell said the Federal Reserve was likely to raise rates higher than expected.
How much the Fed decides to raise mortgage rates depends on inflation data in the months ahead, so plenty could change. One thing the Realtor.com and MBA data shows us is that we should expect negative YOY median sold prices nationwide in the next month or so, given the sharp increase in mortgage rates, which started in mid-February, with rates going from 4 percent to close to 7 percent.
To be successful as an agent, Dessel believes it is imperative to stay on top of all the current factors affecting home sales. “There will always be buyers and sellers in any market condition because people always have life events that require them to move,” Dessel said. “Of course, market strength will be impacted by interest rates, housing inventory, and overall macroeconomic factors.”
In our March recap, Haven will take a closer look at the numbers: how the current U.S. housing market is reacting to prevailing economic factors influencing real estate.