The housing market usually comes to life in the spring when buyers show up in warmer weather. This year the market appears to be stuck in a deep freeze and the biggest culprit is a lack of sellers, real estate experts say.
Buyer interest is there — mortgage applications were up 10 percent mom in March — but the number of homes for sale is small. The discrepancy is caused in part by homeowners who are inclined to sell but sit on the sidelines, put off by the high prices and mortgage rates they would face if they were buyers.
More than three-quarters of sellers in a recent survey conducted by Realtor.com said they felt “locked in” to their home by their own low mortgage rate. More than half said they would wait until interest rates fall before putting their homes on the market.
Sandy Robinson, a 71-year-old retired teacher from Fairhaven, Massachusetts, is intimidated by the market. She wants to sell her two bedroom townhouse but worries if she can afford a new home. “It’s a bit scary now and you have to be careful,” she said.
A stalemate has rattled the housing market when it should be more resilient. Existing home sales in March fell 22 percent from a year earlier, according to the National Association of Realtors. The inventory of unsold homes on the market stood at 2.6 months at the end of March, meaning that’s how long it would take to sell them. Inventory is usually doubled to balance supply and demand.
“We’re in a real standstill situation,” said Robert Frick, business economist at Navy Federal Credit Union. “It will be an arduous process to unfreeze the market and it will take a long time before we get back to a normal supply and demand situation.”
Fewer homes for sale mean more competition among buyers, leading to bidding wars and pushing up prices. Though the median price of a home has declined from recent highs, it remains about 40 percent higher than it was in early 2020, according to the S&P CoreLogic Case-Shiller Index, which measures prices across the country.
“Everyone is a little surprised at the level of price stability,” said Todd Teta, chief product and technology officer at Attom Data Solutions, a real estate analytics firm.
Matt Berger wants to sell his three-bedroom starter home in Lebanon, Ohio, where he lives with his wife and two young children, but is reluctant. “It feels tight now and will only get tighter as the kids grow,” he said.
They want to move closer to Cincinnati, but homes they could afford a year ago are now out of their price range. Added to this is the low mortgage rate for her current home: “We’re in the mid-three” – about half the national average – “and I’d hate to say goodbye to that,” said Mr. Berger. 42
“The higher interest rates and home values that are so high are a double whammy and that deters us,” he added. He and his wife hope mortgage rates will come down and they can find a cheaper home in a year or two before their kids start school.
The average interest rate on the most popular home loan, the 30-year fixed-rate mortgage, is 6.43 percent, Freddie Mac reported Thursday, more than double what it was two years ago. Mortgage rates peaked at over 7 percent late last year, but the decline has been slow and uneven since then.
According to a survey by John Burns Research and Consulting, in order to motivate sellers again, interest rates must drop to the “magic mortgage rate” of 5.5 percent. More than 70 percent of potential homebuyers told researchers they were unwilling to take out a mortgage above that rate.
“Homeowners seem to be pretty patient right now,” said Maegan Sherlock, senior research analyst at John Burns. “Until things get a little better, these people will persevere,” she added.
Most industry experts believe that the turning point is still a long way off. “This will be a transitional year,” said Danielle Hale, Realtor.com’s chief economist. “As we move towards 2024, we should see more people willing to buy.”
The market could also thaw as demand from frustrated buyers is met by homebuilders who “have historically created first-home opportunities and advancement opportunities,” said Attom’s Mr Teta.
A lack of inventory of existing homes appears to be pushing buyers toward new-build homes, a smaller market where sales have held up better. According to the Census Bureau, sales of new single-family homes in March rose almost 10 percent from the previous month.
The National Association of Realtors forecasts new home sales to grow 4.5 percent this year and 12 percent in 2024. She expects existing home sales to fall about 9 percent this year and then rebound in 2024.
And there are always reasons reluctant homeowners might be forced to sell, such as:
“If you plan on staying in your house for more than five years, you’re not going to kill 6 percent,” she said of current interest rates.
Still, many homeowners are waiting.
Ellen Goldman, a 72-year-old retired attorney in Naples, Fla., wants to downsize. She and her husband, Sam Savage, have lived in their two-story home since 2004, but recognize that the stairs become more difficult as they get older.
“We’re both training, and that’s not a problem,” Ms. Goldman said, adding, “We want to take the step now, before it gets too difficult.”
But they are in no hurry. “We don’t have to do this,” she said while keeping an eye on local prices. “We would also like to stay.”