This was a BIG story on Realtor.com last week as the story began with existing home sales prices have dropped by $10k since May. However, “We are going to see prices drop as we do seasonally,” said Realtor.com Chief Economist Danielle Hale. Exactly! The story should have stopped there; but it didn’t. Instead they cited that existing home sales are down by 20% year over year according to NAR and new home sales are down 30%.
For the 3 years before Covid we were selling between 5 and 5.5 million homes on an annualized basis. Then, from June 2020 to January 2022 over 6 million homes on an annualized basis were selling. Why? Record low mortgage rates caused many people to move up to a bigger or better home sooner than they might have done so. I had over a dozen clients who had purchased their first home just 2 or 3 years previous who bought their second homes sooner than normal. Thus, we have less demand today and for the near future because they bought during Covid instead.
Mark Zondi, chief economist for Moody’s thinks the most juiced-up markets like ours could see 10% to 15% price declines without a recession and if we have a recession we could see 20% price declines.
However, Mark is forgetting 3 incredibly important facts. First, over 95% of all mortgages are fixed rate mortgages and thus people’s mortgage is NOT going to cause them to sell their home like it did 15 years ago. Second, our unemployment rate is 3.5% and we need an unemployment rate over 8% and possibly 10% for probably 2 consecutive years to “force” people to sell their homes for financial reasons. Third, tens of millions of homeowners have a mortgage rate below 4%. Why would they sell their current home when mortgage rates are so much higher? People now need a BIG WHY to move such as marriage, divorce, having or adopting kids, or a new job in a location that is too far away to drive too.
Thus, people will stay PUT IN THEIR CURRENT HOME AND THEIR HOME WILL NEVER GO ON THE MARKET. Thus, I expect new listings will continue to drop which will keep inventory levels low and thus keep prices firm. And with this the number of sales will drop as well. I fully expect this number will drop below 50k this year and the last 2 years we sold 60k properties.
Source: https://www.realtor.com