National Home Supply – June 2022
Housing sales have battled a number of headwinds over the last few years, including, but not limited to, low inventory, rising home prices, higher mortgage interest rates, inflation shooting well past wage gains, and home builders challenged by supply interruptions and exorbitant material costs. But in the middle of the roiling vortex, there’s good news for both buyers and sellers.
According to the latest research available from the National Association of REALTORS, existing home sales shrank for the third month in a row – down 2.4% in April 2022 and 5.9% from a year ago. Slowing demand means that the supply of homes for sale is increasing, albeit slowly. In December 2021, available existing homes reached the lowest level ever recorded at 910,100 units. Since then, supplies decreased another 22% until rising back up to 1.03 million units in April. For perspective, between 2017 and 2019, there were 1.5 million existing homes for sale.
Pending home sales – those under contract but not settled – have declined for the past five months. In March, year-over-year, contract signings sank 8.2%. Because of the lag time between signings and closings, it appears that the June home supply should increase as sales volume declines.
“The falling contract signings are implying that multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions,” said Lawrence Yun, NAR’s chief economist. “As it stands, the sudden large gains in mortgage rates have reduced the pool of eligible homebuyers, and that has consequently lowered buying activity.”
Rising inventory is a good thing for buyers, even while home prices continue to rise. But the short-term news for sellers is even better. Home prices have reached a new record – 122 months of year-over-year increases. The median existing-home price in April 2021 was $340,700. Now, it’s $391,200. Eighty-eight percent of homes sold in April 2022 were on the market for less than a month.
The fast pace of sales is driving sellers to ask more for their homes. The April national median listing price for active listings was $425,000, up 14.2% compared to last year and up 32.4% compared to April 2020, according to Realtor.com®‘s Market Trends Report. The largest year-over-year median list price growth was in Miami (+38.3%), Las Vegas (+32.6%), and Orlando (+30.7%).
In March, the inventory of homes actively for sale on a typical day in March decreased by 18.9% from March 2021, but it was a smaller rate of decline compared to the 24.5% drop in February. This means 89,000 fewer homes were actively for sale compared to the previous year. The total number of unsold homes nationwide, which includes active listings and those under contract but not yet closed is down 12.2% percent from March 2021, a smaller rate of decline from February’s 15.3% decline. Then, Realtor.com predicted that if current trends persist, active and total listings may grow over last year by June or July.
But there may be signs that homebuyers have reached their limits in some major metros and that sellers are responding to the softening demand. The share of homes with price reductions increased marginally to 6% in March 2022. Twenty-five of the largest 50 metros saw an increasing share of price reductions, compared to just 18 in February. Austin homes showed the greatest growth in the share of homes with price reductions compared to last year (+2.9 percentage points), followed by Sacramento and Memphis (+2.3 percentage points). By April, the number of price reductions escalated in Austin (+6.8 percentage points), followed by Las Vegas (+5.3 percentage points) and Sacramento (+4.7 percentage points).
Affordability is declining, which is bound to start restricting sales, suggests Yun, “It looks like more declines are imminent in the upcoming months, and we’ll likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years,” he said.
Mortgage interest rates are significantly higher than they were a year ago. According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.98% in April compared to the generously low average commitment rate of 2.96% for all of 2021.
“For a median-priced home, the price difference is $300 to $400 more per month, which is a hefty toll for a working family,” explained Yun. By NAR’s calculations, buying a home is approximately 55% more expensive than it was a year ago. “Wages have risen by 6% from one year ago and that’s good news,” he continued. “But inflation is at 8.5%.”
Meanwhile, the National Association of Home Builders reported that new housing construction starts in April – those breaking ground – declined just 0.2% to a seasonally adjusted rate to 1.72 million units, despite rising mortgage interest rates and supply chain interruptions. The high number, however, was due to an increase in the multifamily sector, which includes apartment buildings and condos. Multifamily starts increased 15.3% to an annualized 624,000 production pace, while single-family starts decreased 7.3% to a 1.10 million seasonally adjusted annual rate.
On a regional and year-to-date basis, combined single-family and multifamily starts are 6.3% higher in the Northeast, 5.2% higher in the Midwest, 13.3% higher in the South and 8.3% higher in the West.
NAHB Chief Economist Robert Dietz said, “While single-family starts are up 4.1% on a year-to-date basis, we’re expecting flat conditions for the year and a decline in 2023 as housing affordability challenges in the form of higher mortgage rates and construction costs continues to worsen housing affordability conditions.”
Overall permits decreased 3.2% to a 1.82 million-unit annualized rate in April. Single-family permits decreased 4.6% to a 1.11 million-unit rate, while multifamily permits decreased 1.0% to a 709,000 pace. Single-family permits to build are down 2.3% on a year-to-date basis, but year-over-year, they’re up 8.5% to 153,000 units. Meanwhile, single-family units under construction are still growing, up 26% year-over-year to 815,000 units. Only in the northeast are year-to-date permits down 4.9%. Permits are 4.0% higher in the Midwest, 3.5% higher in the South and 1.3% higher in the West.
What does the future hold? Yun expects the 30-year fixed mortgage rate to reach 5.3% by the fourth quarter of 2022, and for mortgage rates to average 4.9%, and rise to 5.4% by 2023. He forecasts inflation to average 8.2% in 2022, although it will start to moderate to 5.5% in the second half of this year.
“Overall existing-home sales this year look to be down 9% from the heated pace of last year,” predicts Yun. “Home prices are in no danger of decline on a nationwide basis, but the price gains will steadily decelerate such that the median home price in 2022 will likely be up 8% from last year.”
