Real estate industry professionals describe a balanced market as the ideal, with buyers and sellers evenly matched, neither having a strong advantage over the other and both willing to compromise to produce a sale. The current market reflects a balance of sorts, but not a healthy one.
It’s more a stand-off, one industry executive told the New York Times, with buyers unwilling and increasingly unable to pay any price sellers demand, and sellers not only unwilling to cut their prices, but in many cases, unwilling to sell at all.
“The sellers aren’t going to get their 2021 prices, and buyers aren’t going to get a substantial savings on the price. Everyone is in the same boat, Jonathan Miller, president of Miller Samuel Real Estate Appraisers and Consultants, told the Times.
Fannie Mae’s monthly home purchase sentiment index ticked up slightly in March, but it wasn’t much above last year’s record low, with a large majority of the consumers responding now agreeing that this is a bad time to purchase a home and 40 percent convinced that it’s a bad time to sell one.
Home prices ─ easing now in most markets, but still close to their June 2022 peak─ and mortgage rates above six percent, have made affordability an obstacle for many would-be buyers.
But rates may be even more of an issue for sellers, Taylor Marr, deputy chief economist for Redfin, notes in a recent report. “Today’s serious homebuyers have grown accustomed to the idea of a five percent or six percent rate and have adjusted their budgets accordingly,” he explains. But for existing owners, considering the need to purchase a home to replace the one they sell, “giving up a three percent mortgage rate for one in the six percent range is a tough pill to swallow.”
Their reluctance is reflected clearly in the dearth of listings for available homes. New listings in March were 20 percent below the year-ago total, leaving the market with a 2.6 month’s supply of homes for sale – well short of the four or five month’s supply industry executives say creates a healthy market.
“The unfortunate reality is that the scarce supply of inventory that’s the source of so much market gridlock isn’t getting any better,” Andy Walden, vice president of enterprise research strategy for Black Knight, observes in a recent press release reporting the listing decline.
“Buyers can’t buy if sellers don’t want to sell,” Redfin’s Marr agrees in his recent report. The lack of listings also explains why prices haven’t fallen as far or as fast as sluggish sales might suggest: The pool of prospective buyers, though diminished, still exceeds the supply of homes for sale in many markets, producing speedy sales and even bidding wars in some.
A ”Subdued” Market
Those are the exceptions, however; homebuying activity overall remains subdued. Even with a significant month-over-month surge in February, sales remained almost 23 percent below their year-ago level.
Lawrence Yun, chief economist for the National Association of Realtors (NAR), is predicting “somewhat better than frozen conditions” for the spring housing market, a tepid forecast, to say the least, for what is typically the most vibrant home buying season of the year.
A ”measurable decline” in mortgage rates would put some bounce in the market’s step, Yun suggests, but with the Fed still fighting inflation (despite concerns triggered by recent bank failures), lower rates seem unlikely in the near term, and rates could move higher before year-end.
An economic downturn – which some analysts are predicting – would make current market conditions worse, with job losses (or the fear of them) and tighter credit curbing homebuyer demand. If that is the scenario, Yun agrees, “it is going to be a much more challenging market for home buying.”