High mortgage rates are still keeping some homeowners from listing this spring, despite market conditions tipping in their favor. Indeed, according to Realtor.com, there were 21.3% fewer homes listed for sale in April compared with the same month last year, largely due to potential sellers feeling “rate-trapped” by their current mortgage. Undeniably, the housing market continues to face challenges as affordability headwinds persist. A separate study by Altos Research revealed that inventory of single-family homes for sale in the United States fell to 419,000 for the week ending May 8, during a period when listings typically inch up. It is expected that the rest of May should lead to a few more price reductions.
For homeowners, the decision to stay put doesn’t come as a surprise; high rates and home prices make, for many, the prospect of trading up unappealing—especially folks with low rates. Price reductions recently increased to 29.4%. Price cuts have been dramatically fewer and slower to arrive. The lack of supply worsened affordability for potential homebuyers as demand picks up. When the economy and poor affordability curtail buyers, price reductions accelerate again. Nevertheless, the median price of single-family homes in the United States this week is $449,000. That’s a small fraction of last week. But the annual price gain is shrinking. This trend continued for the past few months and it is expected to keep shrinking until early July.
The inventory growth rate continues to slow for the second month in a row as fewer potential sellers opted to list their homes for sale. There were 48.3% more homes for sale in April of 2022 than in April this year. This suggests that 184,000 more homes available to buy on a typical day this past month compared to one year ago, but the slow inventory growth suggests that there were still fewer homes available to buy on a typical day than there were a few years ago.
For home buyers, the decline in prices and sales may indicate a shift in demand and supply dynamics, although that may be temporary. In fact, the decline may offer opportunities for potential buyers to enter the market at a more favorable price point. Sales for new homes were down 3.4% compared to a year ago in March, but the mild slowdown had led some builders to offer incentives to attract buyers. The Federal Reserve’s near-zero interest rates early in the pandemic led to mortgage rates dropping to historic lows. This offered greater breathing room for younger, first-time buyers to achieve homeownership. But as the Fed began hiking interest rates to fight inflation, mortgage rates spiked and made housing unaffordable for many amid high home prices. Sky-high mortgage rates are especially harmful to buyers with less equity who will make smaller down payments.