Housing Market Roundup Aug. 23, 2022

Here’s a quick summary of housing/real estate finance articles that have come across the MBA NewsLink desk:

Redfin: July Home Sales Fall to 2-Year Low

Redfin, Seattle, reported home sales fell by 19.3% year over year in July to their lowest level since the beginning of the pandemic, when the housing market was at a near standstill.

Redfin said that’s the biggest annual decline in U.S. home sales in more than a year, a reflection of the continued cooling effects of 5.4%-plus mortgage rates and nationwide economic uncertainty. Home sales dipped 4.1% from the previous month, the sixth-straight monthly decline.

Additionally, Redfin said home prices increased at their slowest pace since June 2020, rising 7.7%. Price growth dipping into the single digits after two years of double-digit increases reflects months of slumping homebuyer demand, homes sitting on the market longer than before and dwindling competition.

The report said some prospective homebuyers were sidelined because they were priced out of the market; others were wary of potential home-value declines in the near future. Sellers also backed off, with many hesitant to sell for less than what they would have gotten at the height of the pandemic homebuying frenzy. Plus, many homeowners are staying put because they have a low mortgage rate compared to today’s rates.

Fannie Mae: Economy Constrained by Competing Effects of Elevated Inflation, Strong Labor Market

Fannie Mae, Washington, D.C., said tightening monetary policy and elevated inflation remain the primary causes of a stagnating economy despite strong job growth,

In its August commentary, the Fannie Mae Economic and Strategic Research Group’s latest forecast of real gross domestic product growth for full-year 2022 and 2023 remained essentially flat compared to last month at 0.0 percent and negative 0.4 percent, respectively. The continued expectation that real GDP growth will be negative beginning in 2023 is due to the combined effects of tighter monetary policy weighing on business and residential investment and still-elevated inflation weighing on consumer spending.

The ESR Group does expect inflation to slow gradually, with the headline Consumer Price Index forecast to average 7.2 percent annually by year-end 2022 and 1.8 percent by year-end 2023, but it notes the precariousness of predicting headline inflation due to energy price volatility and the possibility of renewed supply chain or manufacturing disruptions. The core personal consumption expenditure price index, the focus of the Federal Reserve, is expected to end 2023 at 2.9 percent.

The ESR Group expects total home sales to decrease 16.2 percent in 2022. This decline represents a further downward revision from last month’s forecast of a 15.6 percent drop, as recent incoming data point to a faster slowdown in near-term sales than previously expected, despite mortgage rates having moved lower over the last few months. The latest forecast also projects total mortgage origination activity at $2.47 trillion in 2022, down from $4.47 trillion in 2021, and then a further reduced $2.29 trillion in 2023.

“Housing remains clearly on the downtrend – and has been for several months now – due to the combined effects of outsized home price increases and the significant and rapid run-up in mortgage rates,” said Fannie Mae Chief Economist Doug Duncan. “The question for many market observers is how quickly, and with how much additional tightening, the core inflation rate will come down to the Fed’s preferred target. In our view, the labor market’s continued strength suggests that the Fed is likely to maintain its aggressive posture through the end of the year.”

Redfin: 15% of Home Sellers Drop Asking Price in July

Redfin, Seattle, said More than 15% of home sellers nationwide dropped their asking price in July, with some metros reporting much higher rates.

For example, Redfin said 70% of homes for sale in Boise, Idaho, had a price drop in July as they struggled to match their expectations with the reality of the cooling housing market. While Boise had the highest share of price drops of the 97 metros in Redfin’s analysis, a high share of home sellers across the country cut prices in July. Next come Denver, where 58% of homes for sale had a price drop, Salt Lake City (56.4%) and Tacoma, Wash., (54.8%). Those four metros also topped the list in June, and Boise, Salt Lake City and Tacoma were also among the 10 metros with the biggest upticks in their price-drop rates from a year earlier.

Tampa, Fla. (52.1%), Sacramento, Calif. (52%), Indianapolis (51.4%), Phoenix (50.1%), San Diego (49.7%) and Portland, Ore. (48.3%) round out the top 10. More than half of those metros–Boise, Denver, Tacoma, Sacramento, Phoenix, San Diego and Portland–are among the 20 housing markets that cooled fastest in the first half of 2022 after attracting scores of eager homebuyers during the pandemic.

“Individual home sellers and builders were both quick to drop their prices early this summer, mostly because they had unrealistic expectations of both price and timelines,” said Boise Redfin agent Shauna Pendleton. “They priced too high because their neighbor’s home sold for an exorbitant price a few months ago, and expected to receive multiple offers the first weekend because they heard stories about that happening.”

The report said Nashville, where 32.3% of homes for sale had price drops, represents the typical metro area in July: Half the metros in this analysis had a higher share of price drops, and half had a lower share of price drops. In McAllen, Texas, 15.7% of sellers dropped their asking price, a smaller share than any other metro, followed by Newark, N.J. (15.8%), Miami (18.5%), Honolulu (18.5%) and Bridgeport, Conn. (18.8%).