You can add the Bank of America Institute, an internal think tank, to those who see a bleak outlook for the housing market.
“After two years of record growth, the U.S. housing market has reached a turning point, as elevated home prices and surging mortgage rates weigh on affordability and demand,” institute economists wrote in a report.
As for prices, the median existing-home-sale price hit $416,000 in June, jumping 13.4% from a year earlier, according to the National Association of Realtors. That represents 124 straight months of year-over-year increases, the longest streak on record.
Looking at mortgage rates, the 30-year-fixed-mortgage rate for the week ended July 28 averaged 5.3%. That’s up from 2.8% a year ago, though down from 5.54% a week earlier, according to Freddie Mac.
Mortgage Applications Slide“As a result [of all this], home sales are slowing and Bank of America internal data show that residential-mortgage originations for consumers contracted by 29% year over year during the second quarter,” the institute economists said.
So it’s no surprise that existing-home sales in June fell for the fifth straight month to a two-year low, according to the NAR. Sales slid 5.4% from May and were down 14.2% from June 2021.
“Purchase demand continues to tumble as the cumulative impact of higher rates, elevated home prices, increased recession risk, and declining consumer confidence take a toll on homebuyers,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
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“It’s clear that over the past two years, the combination of the pandemic, record low mortgage rates, and the opportunity to work remotely spurred greater demand.”
But “now, as the market adjusts to a higher rate environment, we are seeing a period of deflated sales activity until the market normalizes,” Khater said.
‘Challenging Outlook’Bank of America Institute economists note a similar trend. “The outlook has become much more challenging,” they said.
“Housing affordability plunged to the lowest level since 2006.” Depressed affordability means demand for new purchases will be lower, they said.
NAR Chief Economist Lawrence Yun doesn’t see a drop in housing prices, though price growth is likely to slow.
Falling sales volume should increase available inventory in some markets, Yun said in Congressional testimony. But it won’t be enough to erase affordability issues, which have made it impossible for many Americans to buy homes in recent years.
“In the near term, I do not expect the situation to change appreciably,” he said. “Historic undersupply in the market, combined with continued demand, will likely drive ongoing issues with affordability for many Americans.”