US Housing Market Mired in the Mud

Is the US housing market actually tipping in buyers’ favor? We wouldn’t bet the house on it.

While June typically marks the hottest point of the year for home sales, last month saw a decline instead, as prices rose to a record high, according to data released last week by the National Association of Realtors (NAR). Can anything help homebuyers out?

The Laws of Market Gravity

Prospective buyers have had reason for a smidge of optimism so far this year. A RedFin report published in May showed that sellers outnumbered buyers in the US by half a million. Meanwhile, data from the US Census Bureau in June showed the inventory of completed new homes reached the highest point since 2009. Translation: Supply is outstripping demand. And yet, the polarity of market dynamics seems permanently reversed in sellers’ favor.

In June, existing home sales declined 2.7% from May (and were unmoved year-over-year), according to the NAR, while the median existing-home sale price rose 2% year-over-year to $435,000, an all-time high after 24 straight months of year-over-year price increases. 

The culprits behind the stagnation, it seems, are fairly simple:

• “Multiple years of undersupply are driving the record-high home price,” NAR chief economist Lawrence Yun wrote in the report. “More supply is needed to increase the share of first-time homebuyers in the coming years, even though some markets appear to have a temporary oversupply at the moment.” 
• Meanwhile, Yun writes that elevated mortgage rates are playing a major role in locking out first-time buyers as well, claiming that a decline in rates to 6% — from a level of around 6.75% for a 30-year fixed mortgage through most of June — could tip the market in buyers’ favor.

Hope is Where the Heart Is: Making matters worse? Economic uncertainty. Case in point: About 15% of pending home sale agreements fell apart in June, per a RedFin report published Thursday, marking a record high for the month and likely a sign that prospective buyers are proving too skittish to ultimately pull the trigger. “Some buyers are canceling deals because another home pops up in the same price range that they like better, or because they discover a flaw and get nervous it’ll cost too much to fix,” Redfin Premier agent Crystal Zschirnt said in the report. “I’ve also heard of some buyers backing out because they’re hoping home prices or mortgage rates are going to plummet soon, even though that’s unlikely.” Keep dreaming, folks.