QTR: Housing Demand “Vaporized” After Rates Hit 7%… And A New Wave Of Inventory Is Next
Like all other assets, there’s a seasonality to real estate. While the stock market tends to rally into the end of the year, sales and activity slow during the holiday season, only to gradually thaw out in the spring.
This year, that move is occurring amid a painful backdrop. Mortgage rates have jumped to 7 percent, more than double where they stood at the start of the year. That’s having an impact on price… but also likely on supply come the spring.
With buyer demand for homes slowing amid rising rates, inventory is likely to creep up. That’s because listings are likely to stay on the market for longer. And as new homes are added, it’s clear affordability will need to improve to clear the backlog.
Thanks to years of low rates, today a full 92 percent of homeowners enjoy rates under 5 percent. And nearly two-thirds have rates under 3.75 percent.
So the silver lining is that many won’t list their homes for sale unless they absolutely need to move.
With rising mortgage rates and a gradual rise in inventories likely in the spring, expect further pressure on home prices. So far, the drops have been minimal. But for those who have to make a sale, it’s only a matter of time.
That will help improve home affordability. But it may also take the next round of interest rate declines to make a real difference.