TROUBLE AHEAD- HOUSING MARKET CONTINUES TO COOL

Whats up everyone

Although we started to see an uptick in buyer activity in the past few weeks, it looks like we may have had some false hope. 

As mortgage rates started to drop a little in early February, signs of the housing market recovery were all the talk.

So what happened? 

Mortgage rates started to rise again which put a damper on the market.

Potential Homebuyers paused and activity fell.

The latest inflation report and Recent economic data, including strong retail sales and job numbers, suggest it might take longer than expected for the Federal Reserve to tackle inflation. 

As a result, rates started to climb again reaching the highest level since November which scares a lot of buyers.

“The  somewhat disappointing inflation numbers put a wet blanket on homebuyers after sub-6% rates lit a fire under them a few weeks ago,” said Redfin Economics Research Lead Chen Zhao. 

 “Inflation is cooling too slowly–and the job market and retail sales are too strong–for the Fed to ease up on interest-rate hikes, which means mortgage rates are unlikely to fall much in the next few months”

This doesn’t necessarily mean that rates are going to soar past 7%- but it does mean that the housing market recovery will remain touch-and-go until we see inflation and the overall economy improve for a longer duration.” 

In fact, even investors are backing off the market at a higher pace than they did back in 2008. 

According to Redfin, In the fourth quarter of 2022, investor home purchases plunged 45.8% compared to the same period the previous year, as mortgage rates rose and home prices declined. 

In 2008, investor purchases fell 45.1%. 

This may be good news for individual buyers who couldn’t compete with the cash investors during the housing boom.

Today we will take a look at Redfin’s data and see what the signs are moving forward.

Lets dive right in

Even before mortgage rates rose to 6.87% this week, homebuying activity was still very low. 

In fact, mortgage purchase applications for last week were down 43% on a year-over-year basis. 

That being said, buyers were still more active than they were last fall.

According to Redfin, pending sales continue to improve- they’re down 18% year over year, but that’s roughly half of the 33% decline in November. 

Redfin agents report there’s strong demand for move-in ready, well-priced homes in desirable neighborhoods.

And I agree. 

Like I’ve reported in past videos, houses in my area (which is right outside of DC in case your new to my channel ), that are priced appropriately and show well are still selling fast and in multiple offers. 

We are in a mixed market so it can be very tricky for buyers. One house can sit and get reduced while another will go fast and above asking. 

Add to the mixed market, the fluctuation in interest rates, and it can cause a lot of anxiety for buyers out there. 

The best advice I can give is to look at the long term. If you are planning on staying a while in your new home and you can afford the loan right now, you may be able to secure a great home because there is less competition. 

As already stated, investors are Buying Roughly Half As Many Homes As They Were A Year Ago.

In the fourth quarter of 2021, investors bought 89,396 homes in metropolitan areas tracked by Redfin. 

In the fourth quarter of 2022, investors only bought 48,445 homes in those areas.

Investor purchases were a big problem during the housing boom because regular buyers with a loan could not compete with cash offers by investors. 

But although investors have pulled back on Buying homes, this doesn’t mean their market share has dropped, since individual home buyers have also slowed their activity. 

According to Redfin, investors’ share of the market in all the metropolitan areas  was 17.8% in the fourth quarter.

That’s comparable with 17.6% in the prior quarter and down from 19.4% a year earlier.

This is according to a Redfin analysis of county records across 40 of the most populous U.S. metropolitan areas.

In dollar terms, investors bought $31 billion worth of homes in the fourth quarter, down 42.7% from $54.1 billion one year earlier and down 27.5% from $42.8 billion one quarter earlier. 

And to get even more specific, Investor Purchases of Single-Family Homes are down 50%—More Than Any Other Property Type

The cities that are affected the most are the pandemic boomtowns like Las Vegas and Phoenix. 

In Las Vegas, investor home purchases fell 67% in the fourth quarter of last year versus a year earlier, which Redfin’s researchers found to be the largest decline among the 40 metro areas they looked at. 

Investor purchases may also be declining in Atlanta, Charlotte, Las Vegas and Phoenix because those markets were popular among iBuyer investors, many of whom have ceased or slowed operations in recent months. 

The reason it’s important to look at these numbers is if investors pull back and start to offload their inventory at a fast pace, this could accelerate the price declines in those cities where investor share is high. 

This is good news for buyers as prices will come down and homes will be more affordable. 

It’s bad news for homeowners and people who bought a home during the boom because their values will go down faster than if investors were not involved.

According to Redfin, during the four week period ending February 12, Median sale prices fell in 20 of the 50 most populous U.S. metros, with the biggest drops in Oakland, CA (-9.3% YoY), Sacramento (-7.4%), Austin (-7.1%), Phoenix (-5.5%) and Detroit (-5.4%). 

Prices increased most in Milwaukee (13.6%), West Palm Beach, FL (11.2%), Miami (9.9%), Columbus, OH (9.6%) and Fort Lauderdale, FL (8.9%).

 The median asking price of newly listed homes was $378,118, up 1.2% year over year, the smallest increase since May 2020.

And the median home sale price was $346,725,  up 1% year over year.

So prices on a national level – 400+ U.S. metro areas according to Redfin, are still up, even if only a little.

Also, On a national level, Pending home sales were down 17.6% year over year, the smallest decline in over five months. 

So pending sales are improving meaning buyer activity is slowly improving which is normal during the spring market.

Among the 50 most populous U.S. metros, pending sales fell most in Las Vegas (-57.6% YoY),  Austin (-51.7%), Phoenix (-48.8%), Nashville (-47.4%) and Riverside, CA (-46.7%). 

Pending sales rose in two metros: Chicago (67.7%) and Cincinnati (30.2%). 

All of this data suggests the places that boomed the most are also correcting the fastest. 

I hope this is making homes more affordable In those areas, but I think with the higher mortgage rates and still not a lot of inventory, affordability is still going to be an issue. 

What do you guys think? Do any of you live in any of these places that are seeing the most price drops? If so please comment below and let us know what you are seeing.

We are in such a mixed market that depending on where you live in our country, you could be having a totally different experience when it comes to the housing market. 

One thing we’re all experiencing is higher rates, still too high inflation and still very little inventory compared to pre pandemic levels.

This affordability crisis is far from over.

Lets end with some more data from Redfin to see the trends moving forward 

• New listings of homes for sale fell 16.9% year over year. 

• New listings declined in all 50 of the most populous U.S. metros, with the biggest declines in Sacramento (-39.8%), Portland, OR (-38.3%), Oakland, CA (-38.1%), San Diego (-36.9%) and Anaheim, CA (-36%). 

• Active listings (the number of homes listed for sale at any point during the period) were up 22.3% from a year earlier.

This just means houses are taking longer to sell.

• Months of supply—a measure of the balance between supply and demand, calculated by the number of months it would take for the current inventory to sell at the current sales pace—was 4.1 months, up from 3.7 months a month earlier and 2.3 months a year earlier. 

• Homes that sold were on the market for a median of 51 days. That’s up from 33 days a year earlier and the record low of 18 days set in May.

• On average, 5.1% of homes for sale each week had a price drop, up from 2% a year earlier. 

• The average sale-to-list price ratio, which measures how close homes are selling to their final asking prices, fell to 97.7% from 100.1% a year earlier. That’s the lowest level since March 2020.

Like I said previously, comment below and tell us what you are seeing in your neck of the woods. And make sure you tell us where you live.

I hope you got some value out of todays video.