Whats up everyone? 

Take a look at these 2 headlines – Home prices see biggest drop in 9 years and Housing Market Update: Rising Prices Amid Falling Demand and Supply. Both came out one day apart last week. So WT beep? 

Why is there so much discord when it comes to what is happening in the housing market?

Today we’re going to take a look at both articles and see where they are getting their data from and then we can see what you guys and I think is really happening. 

So lets dive right in

Let’s start with the first article written by Chris Arnold for NPR on September 21 titled Home prices see biggest drop in 9 years, thanks to higher mortgage rates

In this article, Arnold writes that Home prices in August were down about 6% from their peak in June, the biggest 2-month drop in prices in nearly a decade. The pace of home sales slowed for the 7th straight month.

He credits the price drops and sales drops as a direct reaction to higher mortgage rates. 

As we all know, mortgage rates have doubled in the last 6 months – from around 3% to over 6%. 

“That magnitude of the mortgage rate increase is one of the largest, quickest increases in such a short span of time,” says Lawrence Yun, the chief economist for the National Association of Realtors . 

Yun says the number of home sales each month is now down about 20 percent from a year ago.

Now, let’s pivot over to the article posted by Tim Ellis of Redfin on September 22 that is titled Housing Market Update: Rising Prices Amid Falling Demand and Supply Reflect a “New Weird”.

In this article, Ellis writes that Home prices increased 1% in the last two weeks after 11 weeks of declines as mortgage rates soared past 6%. 

He credits the price increases with little inventory so buyers are still bidding on the few good houses that are available. 

“Typically, when mortgage rates shoot up, we’d expect prices to come down in turn, but with so few desirable homes coming on the market, buyers are not getting much relief. As a result, home sale prices have picked up in recent weeks”

So how can one article say home prices were down 6% from their peak in June and the other say home prices increased 1% in the last 2 weeks?

Lets go a little deeper.

According to the national association of realtors, the median existing-home price has fallen by 6% from a record high of about $413,800 in June, to $389,500 in August which confirms Arnold’s data. 

So 1 point for NPR.

We all know that the Fed Reserve is actively fighting inflation by increasing interest rates which does affect mortgage rates. Fed Chair Jerome Powell said it quite clearly, “The US has had a “red-hot housing market” for much of the pandemic, and pulling prices lower will help in the Fed’s fight against inflation”

He believes that if the US central bank helps to bring down home prices, it will bring about a more balanced market, return appreciation to sustainable levels, and make housing more affordable. 

But is it working?

Well, lets go back to Redfin’s article. 

So the first thing that stands out to me is that if Redfin is reporting home prices have increased 1% in the last two weeks that this means the contracts that closed in the last 2 weeks to create this data are contracts that were written 30-60 days ago. 

To clarify, there is a lag between the date of contract, which is when you lock your interest rate in, and the date of closing which traditionally is 30-60 days thereafter. 

Well, 30-60 days ago, interest rates were much lower. 

As of the week ending July 29, 2022, Freddie Mac’s Primary Mortgage Market Survey showed the following interest rates: 30-year mortgage: 5.3% 15-year mortgage: 4.58% 5/1 ARM: 4.29%

Today, interest rates are well north of 6%. I just got a pre approval letter for a client with a rate of 6.78%. That’s a huge difference!

So to say home prices increased 1% on homes that the contracts were written with much lower interest rates makes sense to me. 

Today, those same people may not be able to afford that sales price with today’s interest rate and as such, the sellers may have to adjust their prices accordingly which means they will be lower.

Let’s look at Redfin’s data which covers the four-week period ending September 18.

• On average, a record high 7.4% of homes for sale each week had a price drop, up from 3.8% a year earlier.

You can see the red line which represents 2022 is on the upward trajectory. With more listings having price reductions, it makes sense that prices are going down.

So lets be clear. I’m not calling Redfin’s researchers liars. I think they are reporting data as they see it but they are not making it very clear where that data comes from and when it occurred. 

In this very volatile market, its super important to really know your dates because everything is changing so fast! 

Interestingly, in the same report from Redfin that covers the four week period ending September 18, they report that 

Home sale prices in San Francisco fell 6% year over year. 

Oakland, CA- prices fell 2.5%, Buffalo, NY prices fell 1%, Honolulu, HI 1.4% and New Orleans prices fell 10%.

One thing they both agree on is that right now we still don’t have enough inventory. 

IN the NPR article, Arnold reports that Right now, the nation is in the midst of a severe housing shortage. 

And Realtor.com reports Total housing inventory registered at the end of August was 1,280,000 units, a decrease of 1.5% from July and unchanged from the previous year. 

Unsold inventory sits at a 3.2-month supply at the current sales pace – identical to July and up from 2.6 months in August 2021.

Redfin reports that  • New listings of homes for sale were down 19% from a year earlier, also the largest decline since May 2020.

• This is the same 4 week period ending September 18.

• Active listings (the number of homes listed for sale at any point during the period) fell 1.7% from the prior four-week period. On a year-over-year basis, they rose 3%.

So inventory is increasing, but still not enough. This is good and bad. 

It’s bad for buyers because without more inventory, prices may not drop as much as they hope. 

Its good for sellers and home owners because without a big influx of inventory, the housing market won’t crash like it did in 2008 and their values Hopefully won’t go down 27% like they did between 2008-2012. 

The other factor in the housing market that affects home prices is that Buyer demand is down.

Taylor Marr, the Redfin Deputy Chief Economist said, “There has been a lot of talk of a ‘new normal,’ but what’s happening in the housing market feels more like a ‘new weird. The impact of the Fed’s inflation-curbing strategy is seen clearest in the housing market as prospective buyers take a big step back, slowing sales. But since the vast majority of homeowners who might consider moving have a mortgage rate far below current levels, there’s very little new supply hitting the market.” 

In other words, Without buyers wanting to buy right now due to higher interest rates and sellers not wanting to sell because they want to hold onto their low interest rates, inventory is rising but not enough to bring prices down to a point where homes become affordable.

So what’s the bottom line? 

Arnold from NPR writes that Home prices probably will keep falling.  

One reason is that prices got so crazy high during the pandemic due to super low interest rates combined with super heated demand that they sort of “have” to come down from the 30-40% increases in the past 2 years. 

As previously reported, Mark Zandy with Moody’s Analytics predicts home prices across the nation will fall about 10 -20 percent from their peak.

And Ellis from Redfin days that “Those who do choose to list their homes have lost the upper hand their neighbors enjoyed when they sold last spring and should price accordingly. “

Redfin’s Taylor Marr said “The irony is that it may take renewed fears of a recession to bring some relief to buyers in the form of lower prices.”

So what do you think? What’s happening where you live? Are prices going down? If so, how much? Do you think housing inventory has increased? Comment below and tell us where you live. 

Also, what do you think of the Fed Reserve’s strategy? Do you think it’s working? 

IN my opinion, housing is still unaffordable to most because interest rates are up and prices haven’t come down near enough to match them. 

At least where I am in the DC area. 

I’m still seeing multiple offers on houses that are priced correctly and in good condition.

The one change I do see is that buyers are able to protect themselves with a home inspection contingency and may even be able to negotiate seller help on the lower priced houses. 

This is very good for first time buyers who really should have the security of a professional home inspection and may need some seller help with their closing costs.

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