(Bloomberg) — The U.S. housing market, long plagued by a shortage of inventory, is finally seeing a rise in listings. But now, in many places, buyers are simply not showing up.
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Sellers are grappling with the fact that prolonged high rates are dampening demand during a typically crucial season for the market. And according to Redfin Corp., more owners are cutting prices than at any time since November 2022 as inventory gets older.
“With mortgage rates rising above 7% again, homebuyers’ desire to buy has diminished this season,” said Ralph McLaughlin, senior economist at Realtor.com. “You can have high prices or you can have high mortgage rates, but you can’t have both for long.”
Earlier this year, the prospect of interest rate cuts by the Federal Reserve raised some optimism for the housing market, which had just emerged from its worst year for sales of previously owned homes in nearly three decades. But the economy continued to boom, dampening expectations for interest rate cuts in the near future.
“Without interest rate cuts, a harsh reality is setting in for the housing market,” said Robert Frick, corporate economist at Navy Federal Credit Union.
Buyers are getting little, if any, relief from high borrowing costs. The average rate on a 30-year mortgage has hovered around 7% since mid-April. And prices are steadily rising. In the four weeks ended May 26, the median sales price rose 4.3% from a year earlier to a record $390,613, according to Redfin.
Home seekers of all kinds are dropping out of the market. Sales of new homes — a bright spot for an inventory-strapped market — fell in April. Contracts to buy existing homes that month fell to the lowest level in four years. This decline is causing listings to accumulate rather than match buyers, according to Realtor.com’s McLaughlin.
Lawrence Yun, chief economist for the National Association of Realtors, said the spring sales season so far has “certainly been disappointing.” “At the beginning of the year, I thought sales would be up throughout the year.”
Across the country
While sales are falling on average across the U.S., geography matters. Sun Belt markets, including Florida and Texas, that boomed with new arrivals during the pandemic, are now cooling in part because people have driven up prices, according to Redfin. Meanwhile, metros in the West like Seattle and the San Francisco Bay Area saw sharp improvements in late 2022 and are already beginning to recover.
Contract signings fell at least 14% in Houston, West Palm Beach, Florida, and Atlanta, but rose by roughly the same amount in San Jose, California, according to Redfin’s four-week year-over-year data through May 26. Redfin’s measure of pending sales declined 3.4% nationwide.
Eighteen months ago, homes in the fast-growing suburbs north of Nashville wouldn’t last a day on the market, said Don Hackford, a real estate agent in Hendersonville, Tennessee. Nowadays, a developer client recently took two homes off the market after receiving some low-price offers.
“Everything has kind of stopped, and it’s frustrating for Realtors, because it’s like we’ve been shut out,” Hackford said. “There’s no work.”
On Florida’s southwest coast, a fast-growing region hit hard by a surge in home insurance rates, the inventory of active single-family homes in the Punta Gorda area more than doubled last year to 2,143. Meanwhile, the median sales price of a single-family home in April fell by about $30,000 from a year earlier to $351,000, said Leanne Walker, a local broker and president of Realtors of Punta Gorda-Port Charlotte-North Port-DeSoto Inc.
“It’s been very flat. It’s become a total buyer’s market. There’s a lot of price cuts,” Walker said.
Price growth could slow even further in the coming months, said Redfin economist Chen Zhao. But any slowdown would be modest, given rising demand from millennials, which would likely keep the market afloat.
“The consensus expectation was that rates would have come down by now, which would increase demand and supply and boost transaction volumes,” Redfin’s Zhao said. “But instead we’re struggling right around the lows we reached about 18 months ago.”
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