Multiple Reports Confirm Negative Sentiment in Current Housing Market
Written By: Joel Palmer, Op-Ed Writer
A number of housing surveys and reports have confirmed what mortgage underwriters and processors already know too well: It is not the best of times to be in mortgage lending.
Redfin reported that nearly 60,000 home-purchase agreements were canceled in August, which accounted for 15.7 percent of homes that went under contract that month. That was up 14.3 percent from the same month in 2022.
Redfin says potential homebuyers are suffering sticker shock at the moment of closing because of the combination of higher sales prices and mortgage rates at a 20+ year high.
“I’ve seen more homebuyers cancel deals in the last six months than I’ve seen at any point during my 24 years of working in real estate. They’re getting cold feet,” said Jaime Moore, a Redfin Premier real estate agent in Reno, Nevada. “Buyers get sticker shock when they see their high rate on paper alongside extra expenses for maintenance, repairs and closing costs. Many of them would rather back out, even if it means losing their earnest money. A lot of sellers are also willing to let buyers slip away because they don’t want to concede to repair requests.”
Higher mortgage rates have also stifled demand for second homes and vacation homes, according to Redfin.
The company recently reported that mortgage-rate locks for second homes were down 47 percent from pre-pandemic levels on a seasonally adjusted basis in August, compared to a 33 percent decline for primary homes.
August marked the 14th straight month that second-home demand has hovered at least 30 percent below pre-pandemic levels, as high housing costs and limited inventory deter would-be buyers. Rate locks for second homes hit a seven-year low in February.
Mortgage locks for vacation homes skyrocketed during the pandemic, hitting a peak in October 2020. Affluent Americans jumped at the chance to snap up second homes with record-low mortgage rates during a time when many of them could work remotely.
In addition to higher mortgage rates, demand for second homes has fallen because of higher prices, workers being called back to the office, and many city governments cracking down on short-term rentals like Airbnb.
Prices are rising due to a supply shortage. Redfin said the total number of homes on the market is down 18 percent year over year, the biggest decline since February 2022. New listings are down 9 percent as many homeowners refuse to part with relatively low mortgage rates.
The lack of inventory has pushed the value of homes beyond where they should be, according to a recent report by Fitch Ratings.
Fitch estimates home prices in 82 percent of the U.S. metropolitan markets are overvalued, with 49 percent of these areas overvalued by 10 percent or more.
“National overvaluation is beginning to flatten out, with home prices 7.6% overvalued for 1Q23 on a population-weighted average basis,” said Sean Park, Fitch Director. “But the ongoing rebound in quarter-over-quarter home prices is expected to lead to only a continued moderation in overvaluation.”
The current cost of buying has many in the younger generations pessimistic about their ability to ever own a home.
Nearly one of every five (18 percent) millennials and 12 percent of Gen Zers who replied to a recent housing survey believe they will never own a home, according to a new report from Redfin.
Nearly half (46 percent) of millennials and one-third (33 percent) of Gen Zers say their lack of ability to save for a down payment is a barrier, and more than one-third of both Gen Zers and millennials say mortgage rates are too high. Roughly one-third also say they’re unable to afford monthly mortgage payments. About one in five (21 percent) Gen Zers and 16 percent of millennials say they need to pay off their student loan debt before they’re able to buy a home.
“Many young people don’t have a choice between renting and buying,” said Redfin Chief Economist Daryl Fairweather. “They’re renting their home because even though rent payments have increased, too, it’s still more affordable than buying in much of the country–and renters don’t need a down payment.”
Few people, regardless of age, think it’s currently a good time to buy a home.
According to the latest Fannie Mae Home Purchase Sentiment Index® (HPSI), only 18 percent of respondents believe now is a good time to buy a home, while 66 percent says it’s a good time to sell.
The news isn’t all bad.
Redfin noted that there are still more buyers than sellers in much of the country.
“If folks can figure out a way to buy instead of rent, they will,” said Chicago Redfin Premier agent Niko Voutsinas. “Some buyers are cutting back on other expenses to up their housing budgets because they believe home prices are only going to increase. They’re nervous that the minute rates come down, a flood of competition will edge them out. Those buyers typically need to move quickly and offer at or above the asking price if they love a home, because so few listings are hitting the market.”
The trend of companies forcing workers back to the office may also help the housing market.
According to Redfin, return-to-work policies are motivating about 10 percent of U.S. home sellers to relocate, the company said.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
