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The United States housing market has witnessed a troubling decline in available inventory, plunging to its lowest point in over a decade. Recent data from Redfin reveals a 7.1 percent slump in homes for sale in May 2023 compared to the previous year, translating to a seasonally adjusted total of just 1.4 million homes. Such a steep downturn is a glaring indicator of the seismic impact the COVID-19 pandemic has had on the housing market, a situation further compounded by rising mortgage rates. This article highlights the contributing factors and potential consequences for buyers and sellers in this strained market.
Without a doubt, the worldwide pandemic has severely disrupted the housing market. When we peek at the figures from May 2019, it becomes clear how drastic the contraction has been – back then, 2.2 million homes were up for sale, which is a shocking 38.6 percent more than today. The pandemic-induced economic turmoil and uncertainty prompted many potential sellers to shelve their plans to list homes, causing a steep drop in the number of properties available.
During 2020 and 2021, enticingly low mortgage rates sparked a buying spree, drastically depleting the housing inventory. As the rates began to climb, the inventory could not recover sufficiently. Many homeowners with mortgages below 6 percent – over 90 percent of them, in fact – and even more so those with rates under 5 percent – around 80 percent – hesitated to let go of their favorable conditions. The average 30-year fixed mortgage rate shot up to 6.43 percent in May 2023, a jump from 5.23 percent the previous year and far above the record low of 2.65 percent in 2021.
Despite the inventory crunch and the burden of higher mortgage rates, housing prices have remained relatively stable. In May 2023, the median US home sale price was $419,103, reflecting a small 3.1 percent dip compared to the previous year’s record high of $432,311. This resilience is largely due to the persistent mismatch between supply and demand. Limited inventory coupled with enduring buyer interest is holding up the prices.
The report uncovers notable fluctuations in price changes across various markets. Cities such as Austin, Boise, and Oakland, where price surges were significant during the pandemic, are now facing double-digit price declines. Conversely, more affordable cities like Hartford, Connecticut; Rochester, New York; and Cincinnati have seen around 10 percent price increases as budget-conscious buyers sought areas where their dollars have more purchasing power.
Redfin’s Chief Economist, Daryl Fairweather, has cautioned that it’s premature to conclude whether price declines have hit their nadir. The looming increase in mortgage rates, as suggested by the Federal Reserve, could further suppress buyer demand, potentially triggering minor price declines soon. Yet, it seems improbable that the market will suffer the harsh double-digit price plunges reminiscent of the 2008 housing crisis.
In summary, the US housing market is in the throes of an intense inventory shortage, the worst in over a decade. The convergence of the COVID-19 pandemic aftermath and elevated mortgage rates has deterred potential sellers from listing homes. While housing prices have stayed relatively constant, there are evident regional variations in the market. It’s more crucial than ever for homebuyers and sellers to keep abreast of these evolving trends. By doing so, they can better equip themselves to adapt their strategies to navigate the uncharted waters of this current housing market. From potential buyers seeking the most value for their budget to sellers waiting for optimal market conditions, informed decision-making will be key. The housing market’s resilience will be tested in the months to come. Still, one thing is certain: understanding these shifts will be integral to anyone looking to buy or sell a home in this challenging environment. As the market dynamics continue to shift, vigilance and adaptability will be the best tools at our disposal.
