All right, Jay Powell, part of your plan seems to be working: Fewer people are buying homes. But that's not translating to lower prices — at least not yet.
Here's the deal: Once again, for the gazillionth month in a row, home prices in America hit an all-time high. The median price was $416,000 in June, up 13.4% the same month last year, my colleague Anna Bahney reports. That's ... bananas.
At the same time, sales fell for the fifth month in a row, down some 14% from a year ago.
Now, in simple economics (the only kind I know), when prices get too high, that should soften demand — which should in turn force prices down. But that takes time, especially when the market is as white-hot as it's been for the past two years.
Right now, it's an awkward moment. Neither buyers nor sellers are all that happy.
There are a few reasons for that:
- Mortgage rates are double what they were a year ago. The standard 30-year fixed-rate mortgage stood at 5.5% this week, up from 2.8% a year ago. Naturally, that's spurring potential buyers to hold off and hope for a better deal.
- Inventory has improved slightly but remains historically tight. Home builders are slowing construction on new homes, understandably wary of getting caught with a glut if a recession comes along and craters demand.
- Sellers may have gotten too greedy. Think about it: How many neighbors or acquaintances do you know who've sold their house for twice what they paid for it, within days of listing? That's the sellers' market everyone's come to expect.
- Key quote: "Buyers can't figure out what is the right price," Mark Zandi, chief economist at Moody's Analytics, told the Wall Street Journal. "Sellers are very reluctant to give up" on the price they expected to sell for a few months ago.
Sales are likely to keep falling as buyers get priced out by higher mortgage rates, which are influenced by the Federal Reserve's key interest rate policies. And the Fed is all but guaranteed to keep raising rates aggressively until this historically high inflation reverses course. (Tune in next Wednesday when we see what Jay Powell and his merry band of nerds has in store for us this time...)
Despite that overall sales decline, certain markets are still bumpin'. Miami, for example, saw median home prices rise 40% from a year ago. (Orlando and Nashville homes were up nearly 31%.)
BOTTOM LINE
"A combination of higher prices and higher mortgage rates clearly has shifted the dynamics in the housing market," said Lawrence Yun, NAR's chief economist. "Even people who want to buy are simply priced out."
Even though home sales have slowed back to a 2019 pace, the market remains head-scratchingly brisk. The number of days a property is on the market before going into contract is the swiftest ever, at 14 days. (A year ago it was 17 days, and a more typical market would see properties on the market for close to 30 days.)
"Maybe buyers are trying to take advantage of a lower locked-in rate...They want to sign the contract and close the deal quickly," Yun said.
But sellers should take note: This brisk turnaround time on the market is not likely to last, Yun said.
RELATED: As markets sink, individual investors are searching for safe havens. But all the traditional hedges against inflation — gold, real estate investment trusts, oil, even crypto — have lost money.
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