After a spectacular two-year run, the housing market is surging as buyers pull back sharply. One real estate executive said the market is indeed correcting course and it’s becoming difficult to get a deal done as more contracts fall through.
With the Federal Reserve raising interest rates, “demand fell sharply in May and June… [as] buyers were absolutely freaking out,” Redfin RDFN,
CEO Glenn Kelman told MarketWatch in an interview.
Since then, the housing market has recovered somewhat, he noted, but “we’re still going to have, even for the deals that are under contract, a very high cancellation rate.”
“It’s just hard to do deals because the economy is so volatile,” he added. “It’s an extremely uncertain time.”
““It’s hard to make deals because the economy is so volatile.”“
Responding to buyers pulling out of the market, sellers have also become increasingly anxious about listing.
New listings for homes fell 15% in the four weeks ended Aug. 21, according to a report released Thursday by Redfin. This is the biggest drop in listings since the start of the pandemic.
That dampens housing supply slightly, Redfin said, as the number of homes for sale fell 0.6 percent from the previous four-week period.
To quickly find a match, sellers are pricing their homes more aggressively, with the average asking price of newly listed homes falling 5% from a record high set in May.
But not all sellers are able to find willing buyers. In some hot pandemic markets like Boise, Idaho, 70% of homes for sale fell in July, Redfin said.
Builders are also trying harder to lure buyers, Kelman added, and “just as aggressive” with price cuts as sellers of existing homes.
““Some of the price corrections that are in the public record indicate how drastic the correction was.”“
In a third-quarter earnings call Wednesday, Toll Brothers TOL,
President and CEO Douglas C. Yearley said the company has “started to increase incentives modestly” in recent weeks, with the average incentive in August about $30,000 on a $1.1 million home.
“Some of the price corrections that are in the public record suggest how drastic the correction was,” Kelman added. Freebies such as granite counter tops or appliances are not reflected in listing prices.
But the cost of a home today is still out of reach for millions of buyers.
Home affordability has fallen to its lowest level since 1989, the National Association of Realtors noted.
The median sale price was $371,125 in August, according to Redfin, up 6% from the previous period. Sales prices fell 6% after peaking in June, when the median home price was $394,775.
““In 2007, we predicted there would be a crash. We were selling houses to people who couldn’t afford it.’“
For a household taking out a 30-year mortgage with a 20% down payment, the monthly payment for a typical home has risen 54% from a year ago to $1,944, according to NAR.
The 30-year fixed-rate mortgage averaged 5.55 percent on Aug. 25, according to Freddie Mac. A year ago, it was at 2.68%.
Given the weaker data and with buyers — and now sellers — pulling back, industry experts are calling it a housing slump.
But that doesn’t necessarily mean the market is crashing, Kelman said.
“In 2007, we predicted there would be a crash. We were selling houses to people who couldn’t afford them — where they couldn’t even make the first mortgage payment,” Kelman said. “And that’s just not true. Right now, there are trillions of dollars and people buying homes have great credit scores.”
According to the New York Fed, 65% of the $758 billion in home loans originated in the second quarter of this year were to borrowers with credit scores above 760.
Thinking about buying a home? Write to MarketWatch reporter Aarthi Swaminathan at email@example.com.