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- Redfin CEO says housing market is at “all-time low.”
- This may be true for buyers, but the crisis may be worse still for sellers.
- There seems to be no end in sight to high mortgage rates, and sellers are dropping prices.
The housing market is in a bad state for buyers right now and although things are stabilizing, it just means that the pressure will shift from buyers to sellers.
Redfin CEO Glenn Kelman made headlines in recent weeks with several interviews where he said the housing market had reached “all-time lows.”
“This has been a slow-building disaster,” Kelman said in an interview with CNBC. “The housing market is in decline because affordability is at a four-decade low. The only people who have to do so are moving in. I wouldn’t call it a Goldilocks scenario, I’d call it rock bottom. But that’s where we are right now , and the only consolation is that it may not go much lower.”
As long as the market doesn’t get worse For buyers, sellers are still not bottoming out after enjoying rising home values for years. In the real estate market scene, buyers may be ready to come into the world at the same time sellers are beginning to sink.
According to ZIlloq, many potential buyers are investing less than 20% to purchase a home. Paul Bradbury/Getty Images
House prices have started falling
Kelman warned that higher rates could persist until 2024 – echoed recently by the Cleveland Fed – but there are signs that things are getting easier for at least some.
Home construction is increasing at a time of year when it normally slows down. Altos Research recently noted that new home inventories rose 1.8% in the last week of September compared to the previous week.
Zillow also saw an increase in listings, with Jeff Tucker, the real estate listings firm’s senior economist, writing, “There are more motivated sellers and more active listings overall than at any time since last December.”
Additionally, more sellers are lowering their asking prices. During the four weeks ending Sept. 24, the price of U.S. homes for sale declined 6.5%, down from 5.8% in August, according to Redfin.
Zillow’s data was even more aggressive, saying that 9.2% of listings dropped their prices in the week ending September 16, the highest level since November 2022.
Some buyers may soon start seeing a big drop in prices
Rising inventory mixed with active price cuts is good news for homebuyers, and many experts are predicting big cost declines, including Jeremy Grantham, co-founder and chief investment strategist at GMO.
“Home prices will go down,” Grantham said on “The Compound and Friends” podcast. “30% would be a pretty good estimate.”
David Rosenberg, president of Rosenberg Research and former chief North American economist at Merrill Lynch, told Insider in February that home prices could fall as much as 25% from their peak in 2022.
A house destroyed by the storm. Luis M. Alvarez/AP
All this good news is good for buyers. But even for some of them, rock bottom may be an illusion.
While they’re still buying into high mortgage rates and much higher monthly payments, they’re also buying into the situation at a time when insurance rates are rising for many homes due to climate change.
Homeowners with a mortgage typically pay for their homeowner’s insurance as part of their monthly mortgage payment. So not only are mortgage payments rising due to interest rates, but rising insurance premiums are causing a double whammy.
Bad news for sellers and homeowners
Good news for some buyers, but it also means things are starting to get worse for sellers and rock bottom could be a way out for them.
High mortgage interest rates – the highest in 23 years – have hurt buyers as home ownership is now considered unattainable in nearly 80% of all US counties.
However, house prices remain partly elevated this year Thanks for the same interest rates. Homeowners locked into very low rates have been reluctant to sell their homes unless necessary. This reduced the supply of homes for sale and kept prices rising.
“If you have a 3% mortgage, you’re not dying to sell that house and get into a 7% mortgage,” Richmond Fed President Tom Barkin said in an interview with the “Odd Lots” podcast. “It just changes the financial formula. And so what you see in terms of impact is still a very limited supply of homes for sale.”
In this way both buyer and seller got trapped.
France’s Alou Diarra looks disappointed Getty
Due to the continued rising value of homes this year, homeowner equity is the highest it has been in 35 years. But this will not be sustainable if prices start falling.
If home prices begin to fall, not only does this hurt sellers, but it also impacts the value of all homes, with equity owners losing.
And then there are those pesky insurance rates. This can also cause home prices to fall in many areas, which again, hurts the equity of both those who are selling and those who are not.
Kelman notes that just because the market has stopped getting worse doesn’t mean it will get better any time soon. Any rebound may have to wait for the Fed to start dropping interest rates, easing mortgages.
In other words, rock bottom would be nice right now, but the majority of Americans participating in the housing market probably aren’t there yet.
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