Housing Market Update: Supply Drops, Keeping Prices Elevated, As 7% Mortgage Rates Freeze The Market
National Housing Update (data courtesy of Redfin)
The real estate market is currently experiencing a shortage of new listings, which has resulted in a decrease in the number of homes available for sale. In fact, new listings have reached their lowest level for any early June on record, falling 25% compared to the previous year. This lack of inventory has caused the total number of homes on the market to decline by 5% year over year, reaching its lowest level ever for early June.
One of the reasons for the limited inventory is the elevated mortgage rates. As of June 7, the daily average mortgage rate was 6.94%, close to its highest level in two decades. This has discouraged many homeowners from listing their homes for sale because they have relatively low mortgage rates below 6%. They are reluctant to give up their favorable rates, leading to a further reduction in available homes.
However, despite the low inventory, home prices have not experienced significant declines. The typical U.S. home price is down 1.6% compared to the previous year, which is the smallest dip in three months and only half the size of April's drop. In some areas of the country, home prices are even increasing. The median U.S. asking price remains unchanged from a year ago, indicating that sellers in certain metro areas are able to command favorable prices.
The limited inventory has had an impact on home sales, with pending home sales down 17% and continuing a yearlong streak of double-digit drops. Despite this, there is still strong early-stage demand from potential buyers. Redfin's Homebuyer Demand Index, which measures requests for home tours and other services from Redfin agents, is near its highest level in a year. This suggests that there is pent-up demand among buyers, and they may be ready to make offers once mortgage rates decline and more homes become available.
One of the challenges faced by buyers, particularly in the lower price range below $500,000, is fierce competition due to limited options. Buyers are advised to get their loans pre-approved and consider homes under their budget to be prepared to make offers above the asking price.
Leading indicators of homebuying activity include mortgage rates, mortgage-purchase applications, the Redfin Homebuyer Demand Index, Google searches for "homes for sale," and touring activity. Mortgage rates have been fluctuating, reaching a seven-month high before slightly decreasing. Mortgage-purchase applications have decreased compared to the previous week and are down significantly from a year earlier. The Redfin Homebuyer Demand Index has shown a slight increase from the previous week and a 3% increase compared to the previous year, which is the second annual increase in over a year. Google searches for "homes for sale" have increased from the previous month but remained flat compared to the previous year. Touring activity, as reported by ShowingTime, has increased by 16% since the start of the year, which is a positive trend compared to a decline during the same period last year.
