The turn in the US housing market has been sharp and swift. Just ask Karlyn and Jack Stenhjem, would-be downsizers who dropped the asking price for their home near Seattle by almost $US100,000 ($147,000) since May.
The brick Everett, Washington, house, with private access to lakes and trails, is now available for $US899,000, a price that makes Karlyn Stenhjem “cringe.”
“Two months ago our house was valued at $US1.1 million on Zillow,” she said. “When you look at the map of listings now, the little red dots are on top of the other little red dots.”
The pandemic housing boom is careening to a halt as the fastest-rising mortgage rates in at least half a century upend affordability for homebuyers, catching many sellers wrong-footed with prices that are too high. It’s an astonishing turnaround. Just a few months ago, house hunters felt pushed to make offers within days, waive inspections and bid way above asking. Now they can sleep on it and maybe even shop for a better deal.
It doesn’t mean real estate is heading for a crash on the order of 2008. But when a market reaches these heights, even a drop toward normalcy will feel steep. And of course, a recession could make it worse.
“The housing market is absolutely in need of a reset,” said George Ratiu, senior economist at Realtor.com. “Overheated markets are unsustainable. Prices will have to adjust. We’re seeing the slowdown in growth already. The question is whether prices drop or move sideways.”
Home listings, while still low, increased in June at the fastest pace in records dating to 2017, according to data released this week from Realtor.com. The cooling is particularly pronounced in pandemic boom areas such as Las Vegas, Denver and California’s Riverside and Sacramento, as well as further east in Austin, Texas; Raleigh, North Carolina; Nashville, Tennessee; and Tampa, Florida.
Sellers with lofty ambitions are having to pare expectations. In the Austin, Phoenix and Las Vegas metro areas, almost a third of listings in June had price cuts, the Realtor.com data show.
Soaring borrowing costs are only part of the issue. Stock-market turmoil and recession fears do little for buyer confidence. And with the country now in a form of Covid normalcy, many of the people who were apt to make pandemic-inspired relocations have already done so.
In Naples, Florida, agent Jennifer DeFrancesco is advising some sellers to drop prices. The flood of calls from buyers in the Northeast have eased. They don’t feel as flush or flexible now that crypto and stock markets are tumbling and employers are demanding more office presence. And those who felt stifled by Covid restrictions in New York and Boston aren’t as antsy to move now that most mandates have lifted, DeFrancesco said.
“In the month of May, everything came to a screeching halt,” DeFrancesco said. “We have a rule of thumb that says if you don’t have any showings in 14 days, it’s suggested that you’re 10 per cent overpriced.”
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Older buyers are especially worried because they depend on their stocks and savings to live, said Carolyn Young, broker associate with Christie’s International Real Estate Sereno in the East Bay region outside of San Francisco. The buyer pullback has been dramatic for homes at a 55-and-over community in Brentwood.
She has reduced prices by $US50,000 to $US100,000 because cuts that are quick and substantial get buyers in, she said.
“For sellers, it’s devastating, especially if they bought something else earlier and paid too much for that,” Young said.
Still, most sellers are in a position to reap big profits because they’re sitting on a mountain of equity. In May, US single-family house prices jumped almost 45 per cent from May 2020, the biggest two-year increase on record, according to an analysis of National Association of Realtors data going back to 1968. That capped off a decade of rapid gains.
That means even if homeowners lose jobs in a recession, they’re unlikely to be forced to sell at a loss, limiting the prospects of a widespread foreclosure crisis. And unlike the subprime loans that tanked the economy 14 years ago, the latest boom was built on ultra-low mortgage rates, not risky lending, with demand far outstripping supply.
With inventory climbing from drastically low levels, prices in many areas are apt to keep rising, just at a slower pace.
Still, the housing downturn will have economic ripple effects. Fewer buyers means less money spent on landscapers and home decor. It’s also a hit to the real estate industry, with agents and mortgage brokers laid off by the thousands.
