Rising interest rates and red-hot market competition began to take a toll on the housing market. While new and existing home sales continue to outperform last year’s levels, a gradual slowdown in housing demand is reflected in the month-to-month sales declines in both markets. As tight supply remains an issue and home prices continue to surge, many would-be buyers continue to face affordability challenges that are difficult to overcome. With the reopening of the state, the economic outlook will no doubt improve further in the second half of the year. On the other hand, the housing market will likely slowdown in the coming months as buyer fatigue kicks in and costs of borrowing remain on the rise.
Job Recovery Continues but Downward Trend Stalls Out: Initial jobless claims for unemployment insurance remained near 400k but came in higher than expected as employers struggled to fill a record number of job openings. For the week ending June 19, 411,000 first-time filings were recorded, a slight decrease from 418,00 registered in the prior week, but worse than the level projected by many economists. Last week’s figure was the second consecutive week that the level has stayed above the 400k benchmark after dipping below in late May. The good news is that continuing claims are on the decline, falling to 3.39 million, a drop of 144,000.
New Home Sales Pull Back as Prices Soar: Sales of new single-family homes in the U.S. fell 5.9% in May to a one-year low as the median price of newly built houses increased 18.1% from last year. The pull back in sales reflect the affordability challenges that buyers face as prices for raw building materials remain high. Builders also have been reporting lighter prospective buyer traffic in recent weeks, which suggest possible slowdown in housing demand in coming months. The number of new homes available for sale rose 4.8% to 330,000 last month from 315,000 in April. The increase brings the inventory level to 5.1 months of supply, which is close to the long-term norm. Existing home sales also dipped in May from the prior month, according to the National Association of REALTORS®. Sales of existing homes declined 0.9% to 5.8 million units, while the median price registered a new record high at $350,300.
Rates Rise above Threshold but Ease Up Since Then: The average 30-year fixed-rate mortgage (FRM) reported by Freddie Mac climbed above the 3% threshold last week and reached the highest level since April 15. Daily rates have dipped slightly since then but remained higher than the level observed in mid-June at the time of this writing. The falling of the 10-year Treasury yield to below 1.5% at the start of the week is encouraging, but rates are still expected to rise in the short term as inflation remains a concern.
Forward-Looking Indices Suggest a Moderation of Sales: The market could cool off further in the coming weeks as it moves into the summer season. The weekly C.A.R. survey results suggest that more than one in ten (11.4%) REALTORS® expected sales to go down next week, the highest level since the end of December. Those who expected home prices to decline next week inched up to 8.5%, also the highest in the past six months. The supply condition is expected to improve by more REALTORS® though as 47.4% of our weekly respondents believe there will be more listings available in the following week.
Demand Is Slowing as Buyers Feeling Exhausted: Inventory may be on the rise but heated market competition remains a factor that slows the market, as nearly half (45.5%) of our weekly survey respondents said their buyers decided to take a break because of buyer fatigue. Six of ten (57.6%) said they saw more buyers expressing buyer fatigue or feeling burned out than the week before.
iBuyer Home Purchases Inch Back Towards Pre-COVID Levels: iBuyers ramped up home buying after pausing business at the beginning of the pandemic. According to Redfin, the nation’s top iBuyer companies purchased 4,383 homes in the first quarter of 2021, an increase of 20.6% from the last quarter of 2020. Despite the recent quarterly increase, iBuyers still only made up 0.5% of all homes sold, a decline from a peak of 0.8% recorded in the second half of 2019.