A home for sale sign in front of a new house.Adobe Stock
Homeowners are withdrawing their properties from the market in large numbers, which is contributing to an increase in housing costs and a slowdown in an already sluggish market, according to some industry observers speaking with ABC News.
In May, almost 5% of available homes were removed from the market, representing the highest proportion of delistings for that month since Realtor.com started tracking this data in 2022, as indicated by a report shared with ABC News.
“The consistent rise observed over four consecutive Mays highlights a change in seller behavior nationwide,” stated Realtor.com.
Over recent months, a combination of escalating prices and elevated mortgage interest rates has rendered homes unaffordable for a significant number of prospective buyers, prompting sellers to delist their properties due to a lack of interested purchasers, some analysts informed ABC News.
Heightened global instability, particularly concerning the war involving Iran, has also caused hesitation among some buyers who are discouraged by high consumer costs and an uncertain outlook for mortgage rates, they further commented. This serves as an additional reason why sellers have chosen to wait for more favorable market conditions.
“This situation is effectively re-freezing the real estate market,” remarked Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School of Business, in a statement to ABC News. “It has created a stalemate between those looking to buy and those looking to sell.”
The property market encountered difficulties four years ago when a surge in pandemic-era purchasing activity subsided as increasing mortgage rates excluded potential homebuyers. However, at the commencement of this year, signs of optimism seemed to emerge.
In February, the average interest rate for a 30-year fixed mortgage decreased to its lowest point in almost four years. Concurrently, an index measuring housing affordability, compiled by the National Association of Realtors, indicated the most advantageous market for homebuyers since 2022.
The advantageous market began to change after the conflict involving Iran commenced on February 28th, triggering a significant oil price shock that led to a sharp rise in fuel costs.
U.S. Treasury yields climbed as the Iran conflict fueled inflation concerns, thereby increasing the cost of borrowing for various financial products, from home loans to credit card accounts.
Since bonds provide a set annual return to an investor, the prospect of inflation suggests higher consumer prices that would diminish the value of these yearly payments. Consequently, bonds become less appealing. When demand decreases, bond yields rise, inflating the expense of borrowing.
The average interest rate for a 30-year fixed mortgage escalated from 5.99% in late February to 6.6% in early June, according to data from Mortgage News Daily.
An increase of just one percentage point in a mortgage rate can result in thousands or tens of thousands of dollars in extra expenses annually, depending on the property’s value, as reported by Rocket Mortgage.
A home for sale sign in front of a new house.Adobe Stock
“Mortgage rates have been on the rise for several months, causing buyers to essentially give up. This has led sellers to decide to withdraw their homes from the market,” stated Ken Johnson, a real estate economist at the University of Mississippi, in comments to ABC News.
Elevated mortgage rates have also contributed to a phenomenon referred to as the “lock-in” effect, according to some analysts.
Current mortgage interest rates remain significantly higher than those secured by the majority of existing homeowners, who may be hesitant to list their properties and face the possibility of obtaining a substantially higher rate on a new mortgage.
“The available housing supply is diminishing,” observed Wachter, from the Wharton School of Business. “There’s a notable friction within the market.”
The current market stagnation could persist for up to a year if mortgage rates continue to stay high, Wachter added, pointing out market predictions that interest rates will remain unchanged by the Federal Reserve in the upcoming months.
Interest rates might even increase later this year, as indicated by futures markets. Following a stronger-than-anticipated jobs report released on Friday, the likelihood of a rate increase this year rose considerably, according to the CME FedWatch Tool, which gauges investor sentiment. The probability of a quarter-point rate hike in December stood at 43% as of Monday, the tool indicated.
These tight market conditions may also prevent home prices from declining in the immediate future, given that the supply of newly listed homes is likely to remain constrained, according to Johnson from the University of Mississippi.
“I simply do not foresee prices decreasing,” he concluded.
The market could potentially improve if mortgage rates were to decrease, Johnson suggested. Theoretically, a resolution to the Iran conflict could lead to the reopening of the Strait of Hormuz and a reduction in fuel prices, which, in turn, could lower bond yields and subsequently decrease mortgage rates.
“If mortgage rates decline, you will observe an increase in property listings,” Johnson predicted.
Sourse: abcnews.go.com