The inventory outlook is rosier in certain markets than elsewhere
Inventory challenges and scarce supply have long been significant hurdles across the US housing market – but a steady uptick in new listings has given homebuyers some cause for optimism in recent months.
The number of homes for sale nationally jumped by 36.7% in June compared to the same time last year, according to Realtor.com’s latest housing report, giving buyers more options even despite supply remaining well below pre-pandemic norms.
That’s an encouraging trend – but one that’s been driven in large part by huge spikes in new listings across two states, Florida and Texas. Tampa and Orlando saw a flood of new inventory hit the market in June, registering increases of 92.7% and 81.8% respectively, while Phoenix posted a 77.3% surge last month.
Doug Duncan (pictured top), Fannie Mae’s senior vice president and chief economist, told Mortgage Professional America that a glut of new listings in those two states had somewhat skewed the overall national outlook. “Part of it, we think, is development costs,” he said. “For example, in Texas and Florida, maybe some rising insurance costs, incentives, changing things.
“So the bottom line is [that] existing home supply is up, but not dramatically and it’s heavily impacted by those two states.”
Is the tide turning in favor of homebuyers?
Slumping sales across the new-home market, meanwhile, have pushed supply to its highest level for more than 16 years, according to Commerce Department figures released at the end of June.
With mortgage rates and affordability woes continuing to dampen many Americans’ homebuying intentions, sales of new homes fell by 11.3% in May – helping contribute to an increase in the seasonally-adjusted estimate of new houses for sale to 481,000, or 9.3 months of available supply.
Added to the housing construction pipeline and increase in existing-home listings, could the pendulum swing back in favor of buyers? “Perhaps the affordability side of things is really starting to bite and there’s a reasonable chance that you’ll start to see some price concessions on the new-home side to start to move some of that inventory,” Duncan said.
Mortgage rates dipped this week as positive economic signals hint at potential Fed rate cuts. Freddie Mac’s latest survey shows the 30-year fixed-rate mortgage averaged 6.89%, down from 6.95% last week.https://t.co/dwzcf64SkL
— Mortgage Professional America Magazine (@MPAMagazineUS) July 13, 2024
“That said, we don’t see this as any sort of precipice for some sort of a price crash or something like that. We don’t see that because the overall supply levels are still lower than what current demographics would suggest would be appropriate.”
Still, something of a price slowdown is still possible, one that Duncan said will likely play out in local or regional markets rather than as a widespread national issue.
How big of an issue is the so-called ‘lock-in’ effect?
Interest rates have ballooned since their rock-bottom lows of the COVID-19 pandemic, freezing many prospective buyers out of the purchasing process and persuading scores of homeowners to remain in their current properties on much more favorable mortgage rates than they would otherwise enjoy.
Still, that’s not to say Americans will be uniformly dissuaded from leaving those low mortgage rates, Duncan said. Plenty will decide to make a move based on life circumstances, such as the need to move to a bigger home because of an expanding family or for work reasons.
A Fannie survey last November indicated that while the so-called “lock-in” effect was the main reason behind homeowners wanting to stay longer in their property, other factors included being content in their current home and prohibitively high home prices in the present market.
“These findings, as well as others from the survey, indicate that there is more to the decline in existing homes for sale than just the lock-in effect,” deputy chief economist Mark Palim and market research advisor, national housing survey lead Rachel Zimmerman wrote in the report.
Duncan has also noted in previous speeches that many Americans who have a low interest rate but need to move would instead retain their home, become an investor, rent it out, and use the difference between the mortgage payment and the rent to subsidize their mortgage for a different property.
That type of approach is one that could be more common than expected. “People just find different ways of managing their opportunities,” he said, “and so I think we underestimate the creativity of households in reaching their objectives.”
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