By Jill Schlesinger
After hearing three stories about home sales that blew up within days of closing, I figured that it was time to check in on what’s going on in residential real estate this summer.
Conditions have changed within the few months since I wrote about the housing affordability crisis, leaving the market in transition.
Here’s what we know: The rise in mortgage rates (30-year rates are at 5.5% as of this writing, up from just over 3% at the start of the year), combined with still-high prices, has meant that activity has slowed down significantly.
Google searches for “homes for sale” are down 23% from a year ago, which contributed to existing-home sales falling to a seasonally adjusted annual rate of 5.12 million in June, lower than the number of sales recorded in all of 2019 and down 14.2% from a year ago.
Even though there are more homes on the market, inventory remains historically low. As a result, the median existing-home sales price climbed 13.4% from one year ago to $416,000, a new record high since records began in 1999. Prices increased in all regions and June marked 124 consecutive months of year-over-year increases, the longest streak on record.
The rate of price increases is expected to slow by the end of the year, according to Bill McBride of Calculated Risk. He outlined three scenarios for the housing market in the second half of the year: Slow, Stall or Bust.
Slow would mean that “house price growth will be annualized growth in the mid-single digits. For the ‘stall’ scenario, this will be close to no change (seasonally adjusted, annualized) in house prices. And for the “bust” scenario, this would be house prices declining over the next few years.”
McBride believes that the odds of a stall are 50/50, with slow growth “the next most likely scenario.” For those fearing a mid-2000s bust, where prices dropped by a quarter nationally from the peak, McBride thinks that this cycle’s version of a bust would likely equate to declines of 5-10% nationally.
Meanwhile, the real estate story in the summer of 2022 has been characterized by transition and repricing. Some buyers are backing out of potential purchases because their mortgage commitments expired. Others are seeing deals on their current homes fall apart, which means that the move-up or next house purchase must be delayed.
(NOTE: If you are a buyer and want to revisit a signed deal, discuss the details of your contract with a lawyer. You need to understand what allows you to walk away from your agreement without losing your deposit, which can be as high as 10% of the purchase price on the home.)
According to Redfin’s analysis of MLS data, “nationwide, roughly 60,000 home-purchase agreements fell through in June, equal to 14.9% of homes that went under contract that month…that’s the highest percentage on record with the exception of March and April 2020.” Some of those deals will be repriced, others will not survive, and the homes will go back on the market.
When would-be sellers start the process all over again, they will find conditions have changed, starting with more competition for qualified homebuyers.
Redfin notes that as of mid-July, the total number of homes for sale posted its biggest increase since August 2019 and home sale prices continued to fall; the seasonally adjusted Redfin Homebuyer Demand Index, which measures requests for home tours and other home-buying services from Redfin agents was down 17% from a year ago; and buyers are no longer waiving inspection, appraisal, or mortgage contingencies.
Stay tuned for further updates!
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes questions at [email protected]. Check her website at www.jillonmoney.com.