New home sales rise unexpectedly, but the housing market continues to ‘crater’ – here’s when experts predict prices will plummet
New home sales unexpectedly snapped a four-month losing streak and climbed more than economists expected in May, data showed Friday, but experts note the reprieve may not last long, citing the rising mortgage interest rates that should continue to dampen demand—likely to drive prices down to record lows as early as the end of this year.
About 696,000 new single-family homes were sold last month on a seasonally adjusted annual basis, beating April’s rate of 629,000 (which was revised up from 591,000) by 10.7% and far exceeding analysts’ average projections of 587,000, the Census Department reported Friday. .
“Make no mistake about it,” Pantheon Macro chief economist Ian Shepherdson said in emailed comments after the report, saying the rebound didn’t change the market outlook given an “astonishing slump Mortgage applications this year as mortgage rates soared — now at the highest level since the Great Recession — demand cascades.
The housing market is “turning around, quickly, and sales have fallen again,” Shepherdson said, adding he sees “little chance of a clear bottom” until late summer or early September. the fall – after sales fell “significantly” further given the delayed effect of mortgage applications on sales.
In a good sign for potential buyers, the drop in demand has helped inventory levels – long constrained during the pandemic – to soar, Shepherdson notes, predicting prices will fall in the second half of the year as as homebuilders seek to reduce inventory; the pace has already slowed, with prices rising just 0.8% in the past six months, down from 2.5% last summer.
In a note to clients late Thursday, Goldman Sachs chief economist Jan Hatzius said current housing market trends, including weakened price growth and high vacancy rates, suggest that prices will fall about 3% for every 1 percentage point increase in mortgage rates, which have already risen about 3 percentage points over the past year.
Goldman predicts home prices, which hit a record high of $507,800 last quarter, will peak in the fourth quarter of this year and then decline through mid-2024.
“May’s rebound doesn’t change the bigger picture: the purchasing power of potential home buyers has been significantly reduced by soaring mortgage rates, so demand has plunged,” Shepherdson said. “The market is in a crater and prices are under pressure.”
Home prices have soared during the pandemic as interest rates have crashed and an influx of Americans working from home has pushed up demand. However, the Federal Reserve this year began raising rates to rein in inflation, which has been high for decades, driving up the price of buying a home by hundreds of dollars each month and causing demand to fall accordingly. In a sign of potential weakness ahead, the number of housing starts, or new homes whose construction has begun, plunged 14.4% to around 1.5 million last month from 1.8 million in April – sharply down. fell short of economic projections of nearly 1.7 million housing starts, the Census Bureau reported last week.
With affordability issues dampening demand, sellers have slashed asking prices at the fastest pace since at least 2015, according to real estate broker Redfin. About 6% of listings saw price declines in the four weeks ending June 19, Redfin reported Thursday. Prices have yet to come down significantly,” Redfin chief economist Daryl Fairweather said in a statement, noting that about 55% of homes sold above list price. “But if the housing market continues to cool, prices could fall in 2023,” he added.
The Fed is expected to make its next interest rate hikes at the end of its next policy meeting on July 27. Goldman economists said they now expect the Fed to hike rates another 75 basis points next month, which will add to the most aggressive increases in two decades. .
Existing home prices hit record $402,000 but sales tumble as housing market ‘painfully’ adjusts to rising rates (Forbes)
Housing market ‘in free fall’ as new construction slumps – here’s when ‘reset’ could drive prices down (Forbes)
Mortgages top 6%, hitting highest level since 2008: Housing market could ‘torpedo’ US economy, expert warns (Forbes)