The US housing market faces a chicken and egg problem, according to Realtor.com. High mortgage rates are deterring buyers, and sellers who don’t want to swap out low rates they locked in previously. New home listings dropped 22.7% in May as many sellers and buyers stay put, but home prices could start falling. Loading Something is loading.
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Realtor.com pointed out the “chicken and egg” problem plaguing the housing market right now: High mortgage rates are keeping both home buyers and sellers sidelined, with the former hesitant to spend and the latter unwilling to part ways from the lower rates they locked in on current homes.
This means that even those buyers who are willing to pay high rates are struggling to find homes for sale. In May, there were 22.7% fewer new homes listed than last year.
“Many sellers report being concerned about finding another home, which may cause some of them to put plans to list on pause,” Realtor.com chief economist Danielle Hale said. “But this reduces the total number of options for buyers in the market.”
To be sure, while there are fewer new home sellers entering the market, total listings of both new and old homes remain 23.4% higher compared to last May. But those homes are staying on the market for a median time of 43 days, about two weeks longer than a year ago.
Still, in Hale’s view, it’s possible that home prices will climb in June, as they tend to do this time of the year, before falling.
Last June, median US home prices reached a record high of $449,000. That seems like a less likely mark for this month, however, as annual price growth has eased.
“Based on current trends, it’s possible that [home prices] won’t hit the previous year’s peak for the first time in our data,” said Sabrina Speianu, economic data manager at Realtor.com.
Again, this comes back to still-high mortgage rates. If they remain hovering in the 6% or 7% range, home prices may eventually have to fall down to compensate. Buyers have been getting slammed by the current combination of high rates, high prices, and low inventory.
This pattern is already showing up in the market, as the share of listings with price reductions climbed from 10.2% last May to 12.7% this year.
“Sellers appear to be aiming for a relatively high starting point in the market this year and are willing to negotiate if needed,” said Hale.
Meanwhile, the housing market has become increasingly localized, with price movements varying by large margins depending on location. Price growth in Miami, for example, has seen a 10.9% jump, while San Francisco has seen a 10.1% decline. That disparity between the two cities is near a 30-year high.