A home for sale, in trust, in Laguna Woods, California.
Scott Mill | CNBC
Anyone buying a home in the resale market knows the choices are few. You’ll be slimmer soon.
According to Realtor.com, the number of homes for sale this month was up 7% from June last year. But in just the last week, that comparison has been negative, as the number of homes for sale fell below year-on-year levels for the first time in 59 weeks.
In the last week of June, new listings were down 29% compared to the same week last year. That’s a bigger drop than in previous weeks.
With mortgage rates continuing to rise, according to Mortgage News Daily, topping the 7% mark again on Thursday with 30-year maturities, homeowners have little incentive to sell their homes. The vast majority of homeowners with mortgages have interest rates below 4%, some even below 3%.
An even tighter housing market means house prices are unlikely to cool down. Prices peaked last June after rising over 45% from pre-pandemic levels. They started falling because mortgage rates had doubled in a matter of months. However, prices bottomed out in January, according to the latest S&P Case-Shiller home price index, despite still higher interest rates and slower selling.
“The ongoing recovery in home prices is broad-based,” S&P DJI chief executive Craig Lazzara said in a release.
Pending sales, which measure signed contracts for existing homes, fell nearly 3% in May from April, according to a report from the National Association of Realtors on Thursday.
“Despite the sluggish deal signings, the housing market is resilient with about three bids for every bid,” Lawrence Yun, NAR’s chief economist, said in a press release. “The lack of housing stock continues to prevent housing demand from being fully realized.”
On the other hand, the country’s home builders have been big beneficiaries of the tight market, posting a 12% increase in May sales from April, according to the US Census. Higher mortgage rates played less of a role as developers, some with their own mortgages, bought lower interest rates for buyers. In May, twice as many houses were sold but not yet put into use than a year ago.
Even if housing starts for single-family homes are finally picking up, they are still well below historical levels. Builders have also been under-stretched since the Great Recession, meaning the market was undersupplied well before the recent pandemic-driven surge in house prices.
“The bottom line is that despite all the excitement among homebuilders about the need for more supply, the existing home market is depressed and experiencing severe stagflation with few transactions but still very high prices,” wrote Peter Boockvar. Chief Investment Officer of Bleakley Financial Group.